Cobus Loots, CEO of Pan African Resources, on delivering sector-leading returns for shareholders. Watch the video here.
“There are so many reasons why this is waaaaaaay off the mark. Maybe when I get to my desk I’ll type them out, but I want you to think really hard as to whether you think shorting actually caused DEBs to go into Admin. I mean really think about it.”
No, I do not think shorting caused DEBs to go into Admin. I think the criminal collusion/incompetence of the BOD caused Deb to go into Admin, not shorting.
However, I still think shorting is bad for shareholders and can have a negative effect on the SP which gives less financing options for companies with legit BODs. This is why it should not be allowed. Custodians should not be able to use the shares they keep in custody against the interest of the share owners. It is about conflict of interest.
As for DEBs, with the BOD they have there was no other possible outcome. When a company is being deliberately destroyed so it will be handed over to the lenders, nothing will save it.
“Of course the Longs can buy the SP to counter the shorters...cant they? ..why dont they?”
You compare two different things in order to make shorting look legit. The truth is, shorting should be illegal if regulators would have an ounce of morality.
You see, when going long, you buy shares from a willing seller.
When going short, you sell shares from a custodian that lends you somebody else’s shares without his consent. The custodian acts against the interest of his client who owns the share, because the interest of s share owner is for the share price to be high, not to be low. Share owners do not want their shares to be given to shorters so they can sell them and put downward pressure on the SP. But the custodians who act as market makers are happy to allow shorting to earn additional commissions from trading, despite this being against the interest of the share owners who have their shares in custody with them.
The custodian acts against the interest of share owners when allowing short selling, which is a breach of their fiduciary duty, but regulators allow this because they are corrupt, incompetent and malevolent.
If short selling was not allowed, it would be difficult to crush a share price to zero when many shareholders just hold and refuse to sell. Once the weak hands fold and sell their shares, there would be no more shares for sale and the price could only go up. By protecting the SP from devastating crushes, a company in distress can issue additional shares to refinance at a better rate since the shares hold value, and this way shareholder equity is protected. If DEB shares would have lost only part of their value, from 100p to 30p, the company could have issued additional shares at a discounted price of 25p and raise a lot of capital without wiping shareholders.
But the rules are made against shareholders, because shareholders are regular people. They are made to favor crooks like CEOs, BOD and tier 1 creditors.
The 22 march RNS was the first time the company stated the truth. If you bought after that date, you knew what you were getting into. But what about the positive annual reports and updates issued before March? If you read their last annual report in full, you would think the comoany is on the path to recovery and is financially solid. The debt is always “low” or “menegeable” in their reports, and they always have plenty of debt “headroom”. How come that only a few months after having lots of debt “headroom” they go into prepack? Is it related to the fact that MA wanted to oust the BOD?
This is a case of securities fraud, since insiders have witheld information from the public and have presented lies in their reports in order to misslead the public. They knew since September that they were going for a pre-pack, but they published a report with only positive guidance. This is criminal behavious, but nowadays you can buy insurance for theft, so they don’t have to worry about stealing anymore. They have insurance...
I hope everyone who owned shares in Debenhams will forever boycott the company and never ever spend a dime in its stores. We had our company stolen away from us. The ugliest thing to see would be the compay prospering in the hands of the thieves.
I want this company to collapse after the “restructuring” and for the lenders who stole the company from us to lose their money, just as we lost ours because of their collusion with the BOD.
Boycotting this company is the only thing we can do to avange this theft.
The article is not contradictory. What it means is that under MAs deal, those shareholders who do not participate in the new share issue will have a worthless stake in the company due to dillution. This is how it generally happens in such situations. If they will underwrite new shares worth 150 million at the price of 0.1p per share, the share price will instantly drop to 0.1p, so existing shareholders will be left holding shares worth 0.1p which is the equivalent of being wiped out.
The sad truth is that nobody will be giving current shareholders anythig under the current circumstances. With MAs deal, current shareholders will have the chance to rebuy a stake in the company to keep their share, at the hugely discounted price created by the dillution. But the shares we are currently holding are worth zero. I have seen it before, and I have no illusion that things will end up another way.
“I feel for the employees. Lets sort refinancing and march forth.”
But refinancing means shareholders are wiped out. Don’t you feel for shareholders too?
The BOD had the plan to wipe the shareholders since autumn, but if you check their public announcements or rteported results in October, there is no mention of that. It is all good and well and the company is doing progress.
Those thieves lied to shareholders that they are in control and the company is ok, while at the same time conspiring with lenders to steal the company from the shareholders. They refused to engage with MA, the majority shareholder, because what they wanted was to steal the company from him and the other shareholders.
I hope MA will manage to prove in court that this was a delliberate collusion between the board and the lenders, and that some thieves will end up in jail. I know this rarely happens, but one can hope.
Chris Wootton, the deputy financial officer of Sports Direct, suggested shareholders risked having the company stolen from them, were they not given a chance to consider the 5p-a-share bid.“Debenhams shareholders, both major and minority, are sick and tired of being ignored, cast aside and trampled underfoot by the lenders of Debenhams who, through the incompetence or, worse, collusion of the board, are allowing these critical stakeholders in the business to be wiped out. This is the shareholders’ chance to fight back. We reiterate our prior comments that we will leave no stone unturned in pursuing those responsible for this long-planned theft,” he said.Sources close to Sports Direct suggested that a plan for Debenhams’ bondholders to take charge of the company and sideline shareholders had been on the cards since the autumn.Source: https://www.theguardian.com/business/2019/mar/27/sports-direct-weighs-up-making-bid-for-debenhams-mike-ashley
With the current BOD and the way they run the business and the restructuring negotiations, I do not see any chance of recovery for shareholders. They are acting against shareholders and only care about keeping their jobs. Since keeping their jobs means shareholders being wiped, it is either us or them.
Of course, we could be wiped even if the BOD is replaced, but I do not see any recovery with the current BOD. Once they said there is a possibility of shareholders losing their equity, this translates into “shareholder equity has already been discarded in the negotiations”. It is always much worse than what the board says. They are liers and thieves, after all.
At this point, I have no hope left for any recovery. All I wish for regarding DEB is for MA to be able to oust the BOD. I want them to lose their jobs more than I want my loss to be recovered. They got us into this mess with their absurd capex spending (Debenhams Redesigned), their repeated lies in the reported results and their unwillignness to engage with MA. I just want them to lose thier jobs, since we, the shareholders, will lose all our investment because of them.
“Jwood1 would you really prefer that all employees lose their jobs to only the shareholders losing out? That's a pretty nihilistic viewpoint. Getting wiped out is exactly the risk you take as a shareholder. Every day you hold the shares (and don't sell them) you are making a decision to trust the current board and to have faith in the industry. You could've sold out months or years ago. Keeping businesses alive with a new capital structure is infinitely better for the economy, employees, auxiliary industries, etc. than liquidating them.”
If all stakeholders were affected by the company’s problems, then all stakeholders would be willing to cooperate and find a solution to fix the problem and keep the company alive. But since they can just wipe the shareholders without their consent and continue the business as if nothing happened, the other stakeholders are not willing to compromise.
Why should the workers and the BOD keep their jobs when the shareholders get wiped out entirely? Why should the stores be kept open and rent kept being paid when the shareholders are wiped out? If shareholders had the power to close the business instead of being wiped out, everybody else would have been willing to negotiate. Maybe workers would accept a temporary pay cut until things improve, maybe landlords would accept a lower rent rather than lose thier tenant and maybe creditors would be willing to extend the debt maturities instead of facing the prospect of fighting for the assets in a liquidation. Of course, you could also add the city counsels who may be willing to revise their parking fees and business rates rather than losing out a major retail chain.
But of course, it is easier to wipe the shareholders entirely while everyone else keeps their jobs/rents. There would be enormous pressure on the board to make a compromise with MA if the alternative was liquidating the business.
As for your last sentence “Keeping businesses alive with a new capital structure is infinitely better for the economy, employees, auxiliary industries, etc. than liquidating them”, you are of course correct about that. The problem is, a company should not be run in the interst of the economy, the employees or auxiliary industries. A company should be run in the interest of its shareholders. Nobody starts a business with the purpose of improving the economy, creating jobs or heloing auxiliary industries. People start businesses because they want to earn money themselves. If you were a small business owner, you would not continue to operate the business just to keep people employed and to pay rent, if you knew that you will never ever make a profit for yourself anymore (aka new capital structure for current shareholders).
It is very frustrating as a shareholder to get wiped out and see the company still alive. I wouldn’t mind it if the company would shut down like Lehman Brothers. That was fair fo all parties involved. Shareholders lost their equity, the BOD and the employees lost their jobs, and the creditors had to see what can they salvage from the scraps.
But when a company gets restructured with debt for equity swaps and shareholders lose everything while all the rest continue as before, it feels extremely unfair and unethical. The shareholders are not the only ones responsible for the company’s downfall. The BOD managed the company poorly and mislead investors with false presentations, the landlords were greedy and drained the company with huge rent bills, the employees earned their wages while the creditors earned interest. All of that at the expense of shareholders who had their dividend cut first, and now are getting wiped out entirely.
When a company goes down, it should go down for all stakeholders, not only for the shareholders while continuing to pay money to all other parties involved.
“ I tried on the IRV board to warn why dilution wasn’t properly priced in and told people not to buy shares and people just gave me this narrative that the price could only go up, which was astonishing.”
I know what you mean. The problem is most people don’t actually know how company restructuring is done. They fall in the trap of believing that shareholders are actually in control of the company, and if the company survives they will still be in control.
In all other aspects of life, a credit default means the creditors lose, not the debtors. If a counrty defaults on its debt, the creditors lose, while the people of the conutry (aka the shareholders) keep thier country. The conutry does not become the property of the creditors. If a person defaults on his debts, the creditors lose. They do not become the owners of the person (slavery was abolished).
People apply the same logic to companies. They think that after a debt restructuring, if the company is still alive and operational, than the shareholders will still own it. Thinking in this way, it is logical to believe the share price can only go up, since a company like DEB cannot be worth only 50m if it survives and continues. The problem is, the company will be worth much more than 50m, but it will have different owners.
Corporate law is hard to understand, becaue it is counter to basic logic. As a shareholder, you assume that the company will either go bust (close the business) or you will still be the owner, since nobody can force you to give it away for free. The problem is, the BOD does not act on behalf of shareholders as most people believe, and the law puts the creditors above the shareholders in the ownership structure.
“Shareholders absolutely should be wiped out when there is no more value for them. If they were not, debtholders wouldn't convert into equity, and everything would have to be liquidated. Nobody wants that. Please try and do some reading before buying a financial instrument next time.”
You said “nobody wants that” which is false. As a shareholder, I would love to see the company liquidated and the board losing their jobs, since I am losing everything anyway. There is no benefit for shareholders in “saving” the company, if they do not keep a share of it. Seeing the board continue with their high paying jobs after they wiped out your investment is much worse than seeing the company liquidated.
While I know how the capital structure works, I still think it is extremely unfair. The board doesn’t have any responsability, and they are encouraged to carelessly take on debt, because if things turn out bad, it is the shareholders who lose. This company paid out 42 million per year in dividends instead of paying down debt, and now shareholders will be wiped out because of 200 million of debt (5 years of dividends). This is the definition of poor management. They paid dividends so that the company looked good, instead of protecting shareholder value by cutting debt to zero. A company that is not growing must pay down debt as the number one priority. Instead, they paid dividends and invested in their “Debenhams Redesigned” strategy which caused huge additional capex for nothing.
The company should have been debt free now if the board did their job properly. The dividends and extra capex spent in the last three years would have sufficed to pay all debt.
“So how much equity will Debs give away to investors that offer the £200m they are seeking ? are they after a better deal than MA £150m for 5%.”
They are looking for a better deal for themselves, which is keeping their jobs. Of course, the deal where they keep their jobs is much worse for the shareholders, but since they never acted in good faith, they don’t care about the interests of shareholders.
They are managing the company with the sole purpose of keeping their jobs as long as possible. The hell with the rest.
It is really frustrating to see how little protection there is for shareholders against a thieving board. What shareholders can do is to just watch how the company is being stolen away from them by the people who were put there and paid to manage it.
“And, crucially, the reason is not that the lenders are unfairly wiping you out or that the board (or anyone) is conspiring against you. It's because you made an investment in a company whose value is now lower than its outstanding debt and therefore your shares are worthless. It is not a conspiracy. It is not unfair. And your shares being wiped out is actually how the business (i.e. employees, stores etc.) survives rather than liquidates.”
And why is the company’s value lower than its outsatnding debt? This is the question. According to the board just a few months ago, the company was doing just fine. In all their reports they presented things as if the company was solid, it had large debt headroom and it was profitable. Suddenly, the company needs restructuring and the shareholders must be wiped out. Of course we blame the board, because it lied and it destroyed shareholder value on purpose, just to defend their jobs against a MA takeover. They are paid to manage the company in the interest of shareholders, but all they do is to defend their jobs against a shareholder takeover.
If you hire a maid to clean your house while you are at work, and when you get back you find it empty with all the furniture stolen, would you be ok and just say, my furniture value is now zero? Would you be ok with the maid keeping her job?
The people who invested in this company blame the board because it lied and it acted against our interests. Even now, they refuse to accept help from the major shareholder, just because it will mean their jobs being lost.
“Debenhams Board have now declared their loyalty to their staff in preference to their shareholders, which is morally admirable but certainly questionable, since the shareholders are the owners and should be the prime concern of the Board in a purely business context. A single digit offer from Sports Direct will always be preferable to the package that the Board have outlined for shareholders in today's statement.”
It is not morally admirable to steal from somebody (shareholders) in order to keep somebody else’s job. Theft is not morally admirable, and it is even worse when stealing from someone who trusted in you and appointed you to a position of power.
Also, shareholders losing their equity is worse than staff losing their jobs. You cannot get back the lost investment, it is lost forever. On the other hand, when you lose a job, you can find another and replace it.
“Yet the Board surely must act in shareholders best interests, and the loan from him would have been far cheaper than the banking loan, and it looks like it would have had less strings attached as well. Surely this was the best choice? Yet the Board will not agree to it as if MA comes in, they go out. Mortgage commitments rule at DEB, which I suppose you cannot be surprised at, but this is then an impasse. Meanwhile, the banks / creditors are constructing deals oblivious to shareholders which the Board seem to be powerless to stand up against. Or are they acting in collusion together against MA?
The whole thing is unclear, but as a shareholder it does feel that our views are not being listened to at the moment.”
Yes, the board should act in the interest of shareholders, but those thieves only care about their seat. Since the shareholders (represented by MA) want to replace them for being incompetent/dishonest and for running the company into the ground, they decided to fight against the shareholders at all cost. They are willing to take whatever deal keeps the company alive and fends of a shareholder rebellion (meaning MA becoming CEO and the BOD replaced) despite the fact that any such deal will wipe shareholders. They actually want to wipe the shareholders, because they want to get rid of the major shareholder who wants to replace them.
Those damn thieves act as if they own the company, and the shareholders are just a nuisance.
“Amazing the board can do a deal that leaves shareholders i.e the people who own this company nothing without a vote . Scandalous”
Yes, it is scandalous indeed, and it should be illegal. The BOD has acted dishonestly, has presented a false narative in company reports, and it is now acting against the shareholders without shame. It is an obvious breach of fiduciary duty.
I really hope MA can get them into court and uncover their shady dealings. They should be doing time, just like regular thieves.
“There will probably be nothing for shareholders I think.”
Unfortunatelly I think you are right, and I say this as someone who bought into this mess before the downfall started.
The problem with Debs is the BOD which have colluded with the lenders and creditors in order to wipe shareholders. They are not respecting their fiduciary duty to represent the interests of shareholders. When even a large shareholder like MA that owns 30% of the shares has no power to influence the BOD, it is obvious that the company was brought into this situation deliberatly.
As a shareholder, I feel there should be better legal protection for shareholders in public companies. The way shareholders can be replaced without consent is really disturbing. It is like legal theft.