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That is a possibility.
Meta- maybe they were holding the shares for Coltrane anyway? It’s always reported Coltrane had 27% of the voting rights, but only held 17% directly.
Ouch, I guess they aren't interested in participating in any of these boardroom wranglings?
Also done some digging around on the Rbs and the split is 50/50 between iis and PIs. Main holders are Coltrane, Farringdon, SLA, UBS and switch’s bsnk
Feilb that will certainly not happen. If Coltrane and Farringdon get a good deal, then there will be no resistance. Look at the RNS on 2nd January where they are issuing around 15m shares to the lenders as way of warrants. I see these will make it into the market before the 2 votes. As the lenders already have around around 4.5 (well what’s in the public domain) this gives them a total voting right of around 13%.
Add to that the 10% you mentioned below and they are almost catching up Coltrane and Farringdon, so they have some strong support.
"Kenj- a RI is out of question here, my post was regarding D4E."
I know very little about IRV, but if you are right BillTucker, then a D4E deal is likely to all but wipe out existing shareholders. As with POG any new shares are likely to be offered at a discount to the existing sp, and as your calculations show, that could mean billions of new shares.
Assuming that the banks will not extend the loans or offer new ones, and that there is no interest in a new bond issue, then the company must either sell some new shares or face bankruptcy.
An RI or Placing where shareholders are included is the ONLY way to prevent heavy dilution imo. So the first task is to deselect the BoD, if this fails then I fear you are doomed. The next step is to persuade the new board to include shareholders in any fundraising. If this does not happen greedy banks and bond holders will seize the lion's share of IRV, and you will be little better off than with the previous deal. I do not believe that D4E is the solution, it will lead to shareholder extermination.
Bill,
Yes a real possibility that Coltrane and Farringdon will look after themselves and the BoD don't do the right thing by regular shareholders and insiders.
Teresa May had two years to put the BREXIT deal together and only started trying to renegotiate when it was voted down.
The BoD have had one year to put their deal together and are wont renegotiate their deal unless it is voted down.
Unfortunately human nature will dictate, that with the ego''s on the current Board they will not even be able to admit to themselves that their deal is wrong and certainly not to existing shareholders.
If Coltrane and Farringdon are paid off, it still leaves 63% of shares in existence.
Let us say that 10% of those shares are held by Employees who will back the deal (there will soon be a lot of scaremongering from the BoD).
This leaves circa 53% shares. Everyone of these shareholders would need to vote for removal of the BoD for the deal to be prevented. Unfortunately this is very unlikely to happen due to apathy.
A deal like this would make logical sense but as you say people with high average like myself still loose out but I get half my money back. I could also average down to around £1 when the company is more secure and get all the money back in theory.
However the deal can go like this
6bn shares at 8p
Coltrane and Farringdon here’s 750m (12%) shares for you both for voting the deal through
Shares rise to 16p
Both sell raising 120m between them
Result= both walk away with their investment plus profit, normal share holders still been screwed with no chance of getting anything back
Bill
The 85% / 15% split example (on my previous post) demonstrates why the lenders are being greedy:
900m new shares at 40p
150m existing shares at 10p
Total 1.05bn shares at circa 36p post DfE
Company has a total value of £378m with low debt to ÈBITDA ratio. £350m debt loaded on RMD and £75m cash in the bank. Forward sales of circa 7bn with 3bn per year turnover.
This position would be market leading relative to equivalent peers.
As soon as the SP rose from 36p above 48p the lenders get every penny back.
The SP in this situation could after time theoretically rise to £1 (the company being valued at 1.05bn)
A lot of existing shareholders with higher averages would still lose but at least they could walk away with shirts on their backs!
This is the sort of deal the BoD should have held out for. They should have threatened liquidity to achieve this. The lenders would take a short term hair cut but very limited risk.
But the lenders were greedy and the BoD not strong enough.
Hence the current situation with Coltrane & Farringdon!
I just hope the BoD are big enough to admit their deal was too hasty / unbalanced and are renegotiating with the lenders.
75,000 worldwide employees would weigh heavy on anyone. But they are currently giving interserve away and the Lenders will double or treble their money with no risk.
The BoD must know "in the clear light of day" that deal can never be right.
History will judge them very harshly indeed if they continue on their current path. And the mistake will be clearly evident within 3 years in my view.
Feilb-thanks as I said before they don’t need to reduce debt so drastically. At the moment 240m will be more than enough to give the company some breathing space as well as preserve some value for shareholders. I totally agree about the leaks, this was a setup from day one. Like you say they could easily done a d4e at £1, 80p of even 50p which would have been way less painful, but they waited until the 11th hour and deliberately sucked the life of the share price.
Bill,
600m total shares
25% = current total shares (150m)
75% = total new shares to lenders (450m)
It comes down to what price the lenders get the shares at.
At the current (unbalanced deal) they are given shares at 8p
At this level the 75 / 25 split only rights off £36m of debt - which is clearly no where near enough.
To write off the current £450m debt ( they intend to write off) the lenders would have to accept shares at £1.07 which clearly they would not accept.
Coltrane are frustrated for many reasons with the deal, but one is the fact the SP has been driven down unduly due to internal leaks by Interserve & the Lenders.
The current SP being so low gives the Lenders a big advantage (massive number of shares for their £480m debt right off).
A more realistic / balanced deal that Coltrane might accept would be this:
Lenders initially take some pain (receiving 75% equity for the debt swap.)
The SP level is set at a more realistic post DfE value and not discounted against the current rate.
Let's us suggest a post DfE SP of 40p based on £175m EBITDA and 3bn per year turnover.
75% of £480m debt reduction is £360m
So lenders would get £360m equity at 40p to clear £480m debt
£900m new shares at 40p = £360m
This is an 85% / 15% split and probably the very best scenario. Lenders would get every penny back as the SP rises.
To get to 75% / 25% you are reducing the amount of debt you are converting.
450m x 40p = 180m ( but increase to £240m as lenders only get 75% equity for their debt in my example)
So the 75 / 25 split would only get rid of £240m (half the debt they are currently converting)
Very quick calcs so hopefully I got them right....
Kenj- a RI is out of question here, my post was regarding D4E. Sorry to hear what happened with you in Mouchel btw, I’ve had similar happen to me.
BillTucker,
Announcing a Rights Issue causes the sp to drop. When KIER did this recently the sp dropped way below the new share issue price, and many RI shares were not taken up, forcing the underwriters to buy them. Such a recent RI failure by a company in the same field will make it even harder to find banks and brokers prepared to underwrite an RI for IRV.
The solution may be copying the tactics used by Petropavlovsk (POG) in 2015.
They offered 157 new shares for every 10 currently held (just under 16 for 1) at a price of 5p each. So by paying 78.5p for every share currently held shareholders would face no dilution. This was painful but actually favoured those who had a higher average sp, rather than those who had only recently bought in. It also, all but forced shareholders to participate or they would be wiped out.
Feilb- any idea what a 75/25 or 80/20 would look like. For example It’s obviously 450m (making 600m in total) new shares for a 75/25 but this would need the new shares to be issued at £1.06 (to cancel the full 480m debt) which I don’t see happening as that’s 10x the current price. However the share price d4e would sit around £0.85 and can hit.
£2.
How would you calculate a 75/25?
Kenj,
Yes interesting, I noticed too that Interserve tried to take over Mouchel, how ironic is that!
It was a disgrace what happened to Mouchel.
Fingers crossed Coltrane & Farringdon can make a difference for all shareholders.
Thanks, good post!
I am not a shareholder here, but it has been interesting reading about what is going on, and in particular the similarities and references to Mouchel (where I was an investor).
A couple of years before Mouchel collapsed, three companies made bids to take them over. VT Group, Babcock, and yes you've guessed it Interserve. So it is somewhat ironic to see Interserve now is a very similar position.
The institutional shareholders did nothing when Mouchel were in this position. When Mouchel shareholders rejected the derisory 1p per share offer, the directors and the lending banks completed a pre-pack administration within 24 hours. The company was taken private with 80% owned by the banks and 20% by the directors (most of whom previously owned no shares at all).
I would not be at all surprised to see IRV go down the pre-pack route if their proposals are rejected by shareholders. Forget the FCA they are painfully slow and near useless. Nobody will ever be blamed no matter how stupid or incompetent they have been. Unfortunately competence like integrity, is not a pre-requirement of being a director.
The one BIG advantage you have is that Coltrane are prepared to take the IRV board on. So hopefully the BoD can be removed before the refinancing is voted on, and a more acceptable deal negotiated by the new BoD. The alternative looks like near or total wipe out for existing shareholders. I would have loved to have seen a similar scenario at Mouchel, but no one came riding to our rescue. I do hope that Coltrane are doing this for all shareholders, and not just for their own profit.
Good luck guys! I will be watching with interest what happens here.
Feilb thanks I was just thinking along the lines of the worst would happen. I know you’ve stated that Coltrane can block the deal by removing the board, so it’s unlikely but it’s a possibility that the delevearaging goes ahead before the EGM.
Maybe they will come back with 75/25 deal or Coltrane and Farringdin are given 15% between them? I’m sure we will know what’s on the table next week the latest.
Coltrane buy Interserve's shares and increase their stake to 51%.
They buy 24% of the Shares (36m shares @ 10p) = £3.6M (probably £5M in reality as they would have to pay a premium and the SP would naturally rise, as they are snapping up the shares)
They have now spent circa £5m and own 51% of a company with £650m dept.
All the current debt is sitting with the group. Zero held by RMD, zero held by Construction.
Coltrane sell off RMD & Construction Debt free to one of their subsidiaries for £1. They vote on it at an EGM winning with 51% of the vote.
RMD & Construction are gone - they are no longer part of Interserve PLC.
Coltrane then apply to the court to put Interserve PLC with £650m debt into liquidation and thank the lenders for their involvement.
Bill,
As previously stated I think a Pre-pack will be blocked by the new BoD should it come to that (if Coltrane can't agree a deal)
But hypothetically my view on a pre-pack would be:
FCA - could go after old Directors but not the "old" company (that was put in admin).
The new Interserve2 would be liability free (except any of Interserve's Projects it takes on (likely all live ones)).
Viridor will lose any entitlement.
The EfW plants will be warrantied by Interserve2 on the basis they will take over all Interserve's live Projects
The Employees will still be working on what they were working on and not see a lot of difference
The Lenders would fully own Interserve2 as part of the pre-pack deal (probably taking the company private)
Interserve would be in administration and fully loaded (hold all the debt) - no equity to share around - nothing for existing shareholders.
The suppliers / subcontractors would have their live contracts transferred to Interserve2, but could lose retentions from past projects
The Lenders would float Interserve2 in a few years returning their debt and plenty more.
The biggest issue would be the reputational damage. It would be very difficult for Interserve2 to win new work as Interserve would have gone into admin and this would massively damage the brand.
As stated I cannot see a scenario where it will get to that, either the Lenders / Interserve will buy out Coltrane's shares at a premium or Coltrane will win the vote to replace the BoD, block the proposed deal and negotiate a better deal with the Lenders.
What’s everyone’s view on the viability of the prepack deal? Where does this leave liabilities such as FCA investigation as well as EFW liabilities as IRV will be no more. So who will the FCA fine if there is evidence of any wrong doing? Who will compensate shareholders like we saw in the Tesco disco?who will pay Virdior the £60m they owe? Who will warranty the EFW plants? This is looking messy.
cj62,
Yes, it must be very frustrating for Meta, he has forecast Interserve's downfall soooo many times and they won't just roll over and play dead.
He must be gutted!
Meta wants an end game so he can just say I told you so. Why he is still wittering on i do not know but he seems to be taking some sort of sadistic pleasure out of the utter destruction of IRV.
Feilb- indeed this was once a thriving and well respected business, and look at the slow painful demise of it today. All caused by one man being sleep at the wheel who no doubt will profi heavily from any favourable deal to the lenders. As you’ve previously stated shareholders have been written off prematurely, which is a sad state of affairs.
Meta-you say employees will loose out due to shareholders greed, but I think the BOD has already done that by making the share save schemes worthless all for their own personal gain.