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It’s a slam dunk-erton. Either way he wins and gets control of the business. The only thing that can stop him is a hostile bidder entering the fray but he’s saddled the company with high interest debt from lenders of last resort to make an approach less attractive to third parties.
There was a chance to stabilise the SP yesterday before open with a proposal on an equity raise plus tender offer. The fact it didn’t happen is indicating to me that the concept was a ruse and the next RNS will confirm that talks regarding ‘alternative structures’ have concluded and unfortunately an agreement could not be reached.
Personally I wanted to see an RNS proposal detailing a possible equity raise and exit offer yesterday or today to add clarity and stability. The radio silence treatment after dropping the Thursday post close update has made me suspicious that JD will instead opt for working with Hilco to buy the best parts of the business out of administration and not take on debt and liabilities in a private entity. Whether this was all part of a grand plan we’ll never know but saddling the business with high interest debt from lenders of last resort is his doing. For me a third party bid is the best outcome for PIs at this stage. The company was said to be on the radar of potential suitors back in Feb according to media reports.
Important to note that IF (and it is an if) JD exceeds in his buyout through delisting plan, this would be a VOLUNTARY delisting not forced. There is no regulatory pressure to delist, minority holders do not have to take whatever market price is available for their holdings. JD is asking for independent holders’ permission to do this and as such he has to put forward an exit tender offer to effectively pay for this permission.
The question is what price secures the 75% approval he needs whilst deterring any opportunistic hostile bids from slapping a premium on top of this and putting this direct to shareholders. IK’s current average is c. 30.4p and he holds 3.3%. If you assume he’s been acting independently and aggressively accumulating leading into each deadline in expectation of a bid (as his trading would suggest) then making him whole might secure his support for a special resolution and bring across a decent percentage of the vote. First Seagull have been happy to sell around this level so you’d probably get their vote as well.
Just an example scenario: an equity raise issuing 100m shares at 10p would cost him £10m to underwrite plus a tender offer to pass it of buying c50m shares (his 26m plus institutional support and large holders that would roll in with him being the other 50m) at 30p another £15m meaning he would’ve bought the entire business for £25m.
@justsomerandom
Agreed, effectively what you’re saying is that an equity raise would make the buyout by delisting cheaper for him and therefore he could afford to make his exit price offer to shareholders more generous to ensure he gets their approval? Whether he is successful or not all hinges on how attractive the exit offer price is which he’ll need to state in advance (75% of independent holders is a high bar to clear). I also agree that things should move quickly from here, JD needs to push this through before a hostile bidder arrives so hopefully we get some detail Tuesday/next week.
@Rock8
He’s effectively using the mechanism of an equity raise to get what he wants by attaching conditions that deliver this outcome. If a straight forward resolution was put for a Rule 9 waiver and delisting, it would immediately fail. The addition of an equity raise may shore up his institutional support and take him to 45-50% but there’s still no incentive for PIs to back it.
There are many different ways he could introduce an incentive to exit, for example adding a clause that should the resolution pass, shareholders can elect to either hold and be part of the new private company or subscribe to a tender offer and receive (for argument sake let’s say 20p for each share) in exchange for their holding. This might be enough to then bring across another 25% to pass it who just wanted to draw a line under their investment The shares would still be tradable on the open market with the SP stabilising around the tender price until the vote takes place.
In effect he would be buying the business at a rock bottom price and the only thing then stopping him and putting a spoke in the wheel would be an unsolicited hostile bid from a third party dropping prior to the vote from someone who didn’t want him to get a £600m revenue business for peanuts and saw the value in gazumping him.
Needless to say, it would be extremely useful to receive a proposal via RNS before Tuesday market open to add clarity and provide SP stability.
@Rock8
The extra financial headroom is a red herring, it’s the waiver and delisting he wants. He’d need 75% of shareholders to vote for it in a special meeting but as you say, he’d have to offer an exit price attractive enough to have the votes as I don’t think he can pull it off otherwise.
@Temuchin
I think your summary is correct and @justsomerandom’s comment that this is JD’s last desperate throw of the dice.
He failed to put a bid together
He knows the company is now susceptible to opportunistic hostile bids as suitors (ABG, Sycamore Partners, Next, Frasers etc..) no longer have to compete with an offer from him
He wants the company to be delisted so that rivals can’t buy it and he takes it on the cheap
He won’t go down the administration route as competitors with deeper pockets will buy it out and he’ll lose everything
So what does he do? Fabricates the need for ‘alternative structures’ to save face as part of his failed bid attempt and tries to act fast to take the company out of reach for other bidders. The company has £30m cash as of half year results and additional liquidity in the new facility so no need for either a raise or delisting in reality.
Personally I don’t think he gets shareholder approval (turkeys don’t vote for xmas) and the business continues trading with additional non core IP sales and cost saving measures. In the meantime potential bidders will see through his tactics and make an opportunistic move as they’d get considerable support for taking out the company at double Friday’s SP and could immediately sell all the stock and some IP rights for an instant profit with another brand added to their portfolio. They must pounce fast though to scupper JD’s plans. He’d then skulk into the background and leave the business entirely.
Net debt £28.9m. One more IP sale outside of non-core territories eliminates this (media reports end of last year suggesting Middle East IP talks were advanced).
On track to exceed cost savings of £40m this year with more in pipeline would see the business swing to a profit and that’s with revenue staying the same which is unlikely given upcoming monetary easing and improving full price margins due to inventory reduction.
Of course, both of the above will not be revealed/announced until JD has this in his private hands by which time he’s bought the business at a bargain price before retail valuations recover. It would be beneficial if he had a concert partner as this would deter counter bids but he would need a large holder with something like a 3.3% stake. Oh wait….
Am sure the actual Ian Kellett has better things to do with his time than create an account on an anonymous chat board to confirm his investment position to other anonymous people. To quote these posts as evidence that would stack up in court of insider trading is frankly laughable.
I am Spartacus.
Not sure if there is a concert but am happy I have a ticket to it if there is. Definitely food for thought given the threshold has been met. It would be a stroke of genius to delay the offer, let your concert partner scoop up a 3.3% stake on the cheap and allow the maximum bid to fall from 130-140p down to 116p before revealing your hand. The delicious irony of this scenario is that the moronic trolls that occupy anonymous chat boards have been doing the job for JD by trying to talk the SP down and spreading FUD.
Another 350k shares. Guess Ian just loves injecting his cash into a company with no future…
The ‘golden hour’ for moronic trolling (7-8am) in full swing again today I see by the amount of green boxes in my feed.
A lot is made of some retail PIs who go long experiencing anxiety over their positions and questioning their investment decisions but I’ve seen it work both ways. Those who go short have similar levels of anxiety and upon seeing price move against them, will desperately search for a narrative they can put a negative spin on and post it on anonymous public message boards, often creating a new thread with a negative title in the hope that others reply to it to replicate the headline.
As an investor with strong conviction, to me they’re irrelevant noise and I use the filter function so they’re reduced to voiceless green boxes but I can still see the frequency of them and yesterday did make me chuckle as their anxiety and desperation levels caused multiple boxes to appear in my feed as they lost control of the narrative. Similarly I usually see half a dozen or more of these green boxes every morning from 7-8am as they know that most retail buy/sell on the opening bell so this is the premium window to try and influence their thinking. It’s all very sad imo as sound investments work out and those unsound don’t regardless of trolling.
In the case of Sdry, I suspect the continued accumulation of shares by large existing holders including the unexpected entry of the Kellets as a white knight soaking up any selling pressure has given them heightened anxiety, especially as they’re exposed to uncapped losses should their decision to short prove incorrect.
GLA
Ian Kellet & Spouse now own 2.7% of the company.
From their recent accumulation of 2,691,442 shares for a total investment of £838,540:
1,646,442 shares were purchased above 32p
658,905 were bought at 40p and above
Ian is a founding Partner of The Brookes Partnership LLP, an independent boutique corporate advisor, and was Managing Director at Dresdner Kleinwort where he was a top ranked Analyst and headed up an equity research team. Ian then worked at Numis focusing on UK and European Mid-cap M&A and corporate finance as a Director for Corporate Finance. Ian is a Fellow of the Association of Chartered Certified Accountants.
Ian Kellet & Spouse now own 2.7% of the company.
From late January up to and including 19th March 2024 they have accumulated 2,691,442 shares for a total investment of £838,540 at an average of 31.15p.
The lowest price paid has been 16.5p and the highest price paid 48.6p.
Ian is a founding Partner of The Brookes Partnership LLP, an independent boutique corporate advisor, and was Managing Director at Dresdner Kleinwort where he was a top ranked Analyst and headed up an equity research team. Ian then worked at Numis focusing on UK and European Mid-cap M&A and corporate finance as a Director for Corporate Finance. Ian graduated from London University BSc in biochemistry and is a Fellow of the Association of Chartered Certified Accountants.
@fordy88
Agreed, Next also have a relationship with Davidson Kempner (who JD is in discussions with) after previously partnering to acquire JoJo Maman Bebe.
https://www.theguardian.com/business/2022/apr/17/next-and-group-of-investment-firms-buy-jojo-maman-bebe