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The day Emerald got involved this was doomed. I tried to warn people off . Today it came true. Sorry if you lost.
Ouch. The creditors have the company on a very tight leash here. "Give us the most valuable piece of your business and we'll keep you alive for another couple of months". Nothing here to suggest that my previous pessimistic observations on the D4E are anything other than too optimistic!
The saving grace is that I remain convinced that Interserve will emerge as a viable business and the employees will be largely ok. Shareholders will be blitzed - and thats ok - we've always known that we rank behind banks and other creditors.
It would be difficult to move a big chunk of shares without collapsing the share price, but also there could be some opportunity to get involved in the restructuring. The fact that it will need shareholder approval gives them some hope, and they may be given an opportunity to get involved with the D4E.
daniel.f - absolutely spot on. My estimate in a previous post also 3p per share. You've basically stated exactly my view but in better words!
I don't think anyone would buy Interserve without the creditors taking a huge haircut as part of the deal. The creditors would rather do a D4E and get the upside themselves. Don't forget that the creditors aren't just banks anymore - they have sold a lot of the debt to people like Emerald. Emerald only paid 50% of par on the debt. So in essence Emerald are doing what you say but not paying full value for the debt. Then they will use their debtholding to do a D4E and get the equity that way. Same result but cheaper than £800m
Hi feileb, sorry for the delayed reply. I agree that the company could continue to trade for a while, but servicing the debt as it stands will stifle investment and growth as a minimum, and worst case will slowly spiral the company into covenant breach/bankruptcy at some stage later. This is not in the company's best interests, nor the employees, and if the BOD see this as inevitable they will want to restructure now. Indeed that is why they are doing it now. Just because the company can limp on does not mean that the creditors will look favourably on the shareholders. They will take the view that the company is doomed without the D4E and therefore the shareholders are doomed also and that there is no value in the equity at all. The only glimmer of light is that the deal will need shareholder approval, so it really depends on the extent to which current shareholders are given an opportunity to get involved, either through some residual value in their current shares, or via some injection of new money.
The bottom line for the current share price is that in my experience the shares in company's like this trade above their real value driven solely by small retail investors who think there must be an upside at such a low price. Basically they don't realise that they can lose it all.
There's a huge number of very experienced fund managers out there that aren't buying at 12p! That tells you all you need to know.
Unfortunately this is not how D4E works. The debtholders may decide/believe that the true enterprise value is less than the value of the debt write down (which would imply a negative share price - but SP's can't go negative). In this case they would get 100% of the company and current shareholders would get nothing.
Yes donotpanic - the company will survive. That is the most important thing - employees are more important than shareholders IMHO
Pugg1ey - but they won't. Please give me one reason why the debtholders would give shareholders anything. My estimate is 1% of the new Equity for the current shareholders (see my post elsewhere). I reckon they're worth 3p at most.
Its not priced in!!!! The only reason the share price is at 12 p because of people like you buying it because it looks so low they think it can only go up!. They will lose if they are holding when the D4E happens. The debtholders (Emerald will run the restructuring) will NEVER NEVER leave the shareholders with an upside.
Its just a guess based on the following. They will structure the balance sheet (i.e. debt levels) so that there is reasonable equity. Remember Equity (market cap) = Enterprise value - debt (roughly). The enterprise value is driven by profitability (long term free cash flow) and the debt is for them to decide. So they will pitch the debt level such that there is sufficient equity to get a decent market going for shares. For a company generating 100m of free cash (may be a bit high but for the sake of argument) then a 5x multiple seems reasonable. So 500m equity. They can play tunes with this by deciding how much debt they put into the business.
Fastfood - you are absolutely spot on. They will leverage up the new Interserve as much as they can whilst leaving enough headroom in the equity to enable the SP to survive the normal vagaries of business ups and downs. They will incentivise the BOD to pay down the new debt as fast as possible to get their cash out as quickly as possible. In turn the reducing debt will enable SP growth which will give increasing ability to trade out their equity into a buying market.
So I'd like to ask people two questions. If we can answer these correctly we will understand the current real share value
1) What percentage of the new equity will go to existing shareholders?
2) What will be the post D4E market capitalisation?
Multiply 1) by 2) and you get the value of the current Interserve to its current shareholders.
My guess is 1% and £500m. That values the current Interserve at £5m and makes it a strong sell. Between now and D4E you will only make money if you are a short term trader making money off fools.
I would welcome views on the answer to these two questions.
Beautifully put and absolutely correct!
Like the thought process but I think 95% could be optimistic. The debtholders will take the view that its 100% theirs and they will only leave the absolute minimum to get the deal away.
Possibly yes. Your shares are only worth what the debtholders are prepared to leave you with. In some scenarios they could take this private and leave you with absolutely nothing.
I haven't posted for a while. Those of you who remember my posts know that I thought it would end up with a D4E - just took longer than I thought.
The only positive I can see is that they are saying that the refinancing will require shareholder approval - that means that they will leave something in it for current shareholders. The only question is how much?
To quote Paul Daniels - "Not a lot". Those of you who think this is oversold and see this as a buying opportunity - BEWARE. The debtholders will decide what scraps to leave for the equity holders. This is not about enterprise value anymore - its simply about how much they can get away with and get the deal away. If shareholders don't approve then the future is covenant breach in which case they'll get the company anyway. I have some residual shares left having sold most of mine in March at a small loss. I will be keeping the ones I have left so I have an interest and can get involved with the restructuring IF its attractive, but I wont be buying even at this price. I have some experience of D4E so happy to offer advice if anyone is interested.
Redheadedrager - living up to your name. Any thoughtful opinions instead?
This wasnt the deal I was expecting - I was pretty sure d4e was inevitable. The positives are that some cash has been put in, and the business is being given an opportunity to trade out of its difficulties. The negatives are that the debt is still high, interest costs are severe, and there is some dilution without any debt relief. My concern for long investors is that there is a dominant creditor in Emerald who is keeping the business so leveraged that it will hold power over the company's strategy. Its a heavy balance sheet. Looks like I may have sold out too early, but its going to be a long haul - I doubt I'll be buying back in.
Aendjo - you kicked this discussion off. Having read the replies, what do you think?
nimblepm - a good post and you are much nearer the mark I think, and you're perspective on the restructuring is solid. The only difference between you and I is whether its �100m they need or �300m+