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Done a bit of digging and seems like management are proposing the same deal we saw with Mouchel a few years ago.
A new company was formed of which the equity was split 80/20 between the lenders and management team respectively. I have a suspicion something similar is being drawn up here, hence management are keen to get the deal through. Not only will they get to keep their salaries, but have a slice of the profits too so it’s a winner for them. Makes you wonder it’s not just the lenders being greedy, but the management having an equal amount of greed and hence colluded with the lenders for such a ridiculous plan.
https://www.theconstructionindex.co.uk/news/view/banks-take-over-mouchel-in-pre-pack-deal
Good contribution Bill,
Your research leads to a number of interesting possibilities...
Lets say you are correct and the BoD's plan B is a "mouchel" pre pack administration:
There are two votes coming - the vote to remove the BoD and the vote on the deal.
The mouchel scenario makes the second vote on the deal irrelevant in respect if Coltrane win they lose anyway.
This means the first vote becomes more important. But I think that Coltrane & Faringdon have in reality already won the first vote, in respect that they have circa 33% of the vote already and a 50% turn out is the norm.
So the BoD know that the only way their deal or a "mouchel pre pack" can be stopped, is if the BoD get replaced with Coltranes' proposed Directors.
Knowing this, I suspect that the current BoD are trying to buy off Coltrane and Farringdon (to the expense of the remaining shareholders).
I imagine the Lenders / BoD are now negotiating to buy the Coltrane & Farringdon shares at a premium. Between them they hold a 3rd of Interserve shares - currently the total value of the Business is circa £15M so they own £5M.
Imagine if the Lenders & BoD offered to buy out Coltrane & Farringdon at 4 x the current SP. So Coltranes' and Farringdon's £5m of shares become worth £20m. Coltrane and Farringdon walk away with something and the Lenders and BoD get their deal through.
The rest of the existing shareholders are now stuffed.
By the lack of communication from Coltrane & Farringdon, I am guessing they are trying to negotiate the best deal for themselves in the background.
Thoughts?
Feilb- that’s a very strong possibility hence I’m nervous about holding these now. If Coltrane and Farringdon are bought out as you say, then the rest of us will be worse off than the proposed debt for equity deal. However according to the media Coltrane were urging other investors to support their cause to get a “more equitable outcome for shareholders”, so you’d like to think this meant they were looking at the overall picture. Wouldn’t this be illegal though as normally when something like this happens, it’s one offer for the whole equity (1p a share in the Mouchel Scanario), rather than preferential deals for a certain class shareholders.
Also Standard Life Aberdeen have been very quiet and they hold 6.9% so a big amount. If they get wind of any back door deal with Coltrane then they are as likely to kick off a fuss.
Lastly going back to the Mouchel Scenario did you notice the amount of “fees” the chairman and CEO were given to get the deal through?
Do we know who the other institutional funds that have a reasonable position here?
Another possibility maybe 2bn shares are set aside for Farringdon and Coltrane to purchase at 8p a Share? This way they still retain a 3rd of the company and the debt still goes down by 480m.Going back to the RNS which said “new equity which maybe offered to existing shareholders or investors”
I think the shareholders will see some sort of accounts very soon so they can make an informed decision on their vote
Bill,
A couple of views on your posts.
I'm not sure holding shares at the moment is a problem, as it cannot get much worse. Currently 10p and could theoretically go down to 8p, so not a lot to lose really. (if 6bn shares will be issued at 8p then after the DfE the SP will be 8p) . Coltrane will replace the BoD to prevent a Pre-Pack if they don't get "bought off" imo, so I don't think a "Plan B pre-pack admin" could happen.
I don't see a transaction of buying Coltrane & Farringdon's shares above the market rate as being illegal, as this is just a straight purchase between two parties at an agreed level before and DfE is carried out.
Good point re. Standard Life, but if Lenders or BoD buy out Coltrane / Farringdon they will have the voting rights (33%) and will carry their DfE deal. Private Investors unfortunately will not mobilise together and vote in numbers.
I'm not sure which other II's have large holdings if any. My guess is rest of shares sit with Private Investors and Insiders.
Hopefully Coltrane & Farringdon look out for all ex. shareholders, but we know where their priority will be.
I cannot seeing Coltrane & Farringdon purchasing more shares. To buy 2bn shares at 8p will still cost them £160m and their existing holding has already been diluted. The company has given them the option of doing this in the RNS, but I cannot see why they would or any advantage to them.
You are correct Interserve need to communicate and soon.
I still believe they will be stating an EBITDA of between £170M and £175M, which will be incredulous considering the deal they are proposing!
I think that the BoD will stay silent though, until they have an agreement with Coltrane.
Feilb- the issue I see with holding these shares at the moment is the fact that if the BOD decide to go down the prepack route. We won’t even get a penny a share then, compared to the 10p a share they’re currently worth.
Also if the refinancing is blocked £66m becomes due which triggers a default and makes the prepack deal even easier. Not sure where this £66m can come from straight away, unless Coltrane and Farringdon offer a short term loan.
Pretty sure UBS also have 3% holding here.
Also have noticed there has been at least one large trade out of hours the last week so, where someone is buying 300-400k shares at a time. Is it someone on behalf of the lenders I wonder?
Bill,
The worst the SP will end up at is 8p, but I see far more of an upside post DfE (in whatever form).
The Pre-pack route was probably the BoD's Plan B - But Coltrane will block that (by replacing the BoD) if they do not get an agreement (paid off) in advance.
3 scenarios -
Current proposed deal goes through SP starts at 8p and rises slowly over time - low debt - high EBITDA - EfW past etc..
BoD replaced, Coltrane push through better deal for ex. shareholders - SP will rise could be significant - but to what level will be based on deal
Current BoD re-negotiate a better deal with Lenders - Coltrane on board - SP will rise dependent on deal
If BoD are replaced Lenders could possibly demand £66m, but Coltrane could also play hard ball. Move all the debt to Interserve FM, sell off Construction and RMD (very cheaply) debt free as separate companies - Put FM into administration - Lenders get close to nothing back (this would be dependent on the original loan deals but there would be some route that Coltrane could no doubt take to recover their money and screw over the Lenders)
Feilb,
With the most recent findings on the loan conditions, I don’t think the lenders have left much for Coltrane to play hard ball with. From the blocking of any restructuring deal, to the removal of key players of the board in the rescue deal, it seems they have all basis covered.
The only hopeful I can see here is Coltrane pushing through a better deal for all shareholders, or the BOD renogiating the deal by recognising their mistake. However if it’s anything like Mouchel, we know what their preference would be.
There is too much negativity on IRV at the moment so would be wise for them to do the right thing here.
Bill
Totally agree PR disasters every week for Interserve over the last few weeks - they should invest in a PR department.
They do say "there is no such thing as bad publicity" but Interserve are doing their best to prove that one wrong.
Yes too much negativity, surely it's about time, they get on the front foot and put a positive spin on this mess. They are making Brexit look well organised at the moment.
Do the right thing - look after the people who believed in you and invested in you.
They started with two great companies Tilbury & RM Douglas. How far has this business moved away from that origin ?
Once there was a way,
To get back homeward.
Once there was a way
To get back home.
It looks as though Coltrane are posturing to challenge the proposed deal in some way. A salt the earth strategy, unless they have 66m to stump up plus the rest of the debt due. Everyone loses if they go bang: Shareholders, obviously get nothing Lenders, get nothing (but at least they get to stop throwing good money at the bad) Board get nothing, but their pay and bonuses already paid, should soften the blow. Sadly the employees and suppliers get the worst deal, which should forever stay on the consciences of those involved, including shareholders intent on blocking the only deal that could keep the company going.
Meta,
How will the lenders not get nothing if this goes to prepack??? Lenders will get something either way.
It’s shareholders that need to be on the edge here.
Meta
Good to get a view from you but....
Let's face it they won't go bang....
Even a pre-pack admin (which will not happen) will see Employees stay in their current jobs.
Too much value here still and everyone knows it.
The underlying business is still strong and profitable.
No one kicks a dead dog.
Everyone involved is positioning themselves to get the biggest chunk of Interserve they can.
Why? Because in reality they have good people and the right values. Yes they have made mistakes. Yes they have a cash issue. But they were never a carillon (from a debt perspective).
Look at the way they treated their Pension scheme - no deficit.
A good solid company that made bad decisions. Still a good solid Business and will be in the future.
Coltrane & the Lenders will do a deal, because they both see the value.
The present deal in my view is too advantageous to the lenders.
Interserve will survive and be strong in the future. But they will be judged by many, on how they resolve the current crisis.
I don't believe they will be judged well, if they panic and give too much to the lenders. Yes a difficult situation, but they need to believe in themselves and their people and not just hand it all over to the lenders.
Look at what they have, look at the future opportunity, see the true value of this Business - overcome the short term cash issues, reduce the debt ( OK this is easy said than done), but the future still demands the services they provide.
GL
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.
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.
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!
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.
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.
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.
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.
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!
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?
http://www.cityam.com/273551/interserves-rebelling-lead-shareholder-tightens-grip-firm
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.
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.
"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.