Gordon Stein, CFO of CleanTech Lithium, explains why CTL acquired the 23 Laguna Verde licenses. Watch the video here.
Aside from the crazy disconnect from the fundamentals, the free float position here is going to add materially to how things play out at some point. Given that ROX are now entitled to convert (at a time of their choosing, or automatically when the fundraise completes) their CLNs into 28,500,000 new shares, they would then hold 25% of the shares in issue and Curren will reduce to 34%. Of the remaining 41%, quite a chunk will still be with the institutions who remain, albeit that some have reduced. So perhaps half of that number might be representative of the free float, maybe less? That means that, at todays’s SP, the entire free float is worth about £1m. That’s going to create a hell of a squeeze if a bid or some other bit of positive news lands. There won’t be anything like enough shares to meet the demand if that happens, so the SP correction could be spectacular, to say the least.
Longfell, I haven’t decided yet. I already hold shares in three unlisted companies, so I am not unfamiliar with that situation. However, those are pre-listed (i.e. IPOs to come) rather than delisted, so are a bit different. I don’t have any basis on which to judge ROX and Curren by, other than what we have been told. It’s been presented as a fairly low key thing to date (i.e this is what we’re planning and we want an orderly transition) and Curren has seemed a fairly strait-forward chap to me in the video calls he’s done, so I’m hoping we may get the chance to ask him to address it directly before we have to decide. Well, of course, I’m actually hoping we don’t have to decide at all, because another party makes an offer they can’t refuse!
Thanks Smart Money - you’ve made some very considered posts here over the past couple of days.
The following caught my attention on ROX’s website “Our approach hinges on forming strong partnerships with visionary management teams and co-investors to create substantial value by anticipating disruptive trends in carefully selected fields. Through shared financial interests, we build robust alliances, valuing these relationships as pivotal to our success.”
SND obviously perfectly fits with their strategy, but I also thought the emphasis on partnerships and co-investors was interesting.
I’m still fully invested too and feel there’s a lot going to happen in the coming weeks. Not least the next contract announcement. We know there was at least one more significant US deal in the final stages of negotiation a month or two ago, so that could drop any day now. How is the market going to react when another deal that could be worth $20m to $100m lands?
There have been a couple of references on here recently to 10p being a floor for any kind of takeover offer, but I personally think that kind of number is the least likely outcome here.
We already know that ROX want the company to delist, so they have a plan to take the company private that would work very well for them thank you very much. It's not clear what the out-turn for any smaller investors who held onto their shares would be in that situation - they could find themselves squeezed out by ROX and Curren (who would then have close to 75% control) steamrollering through new share issues in a way that disadvantages smaller holders and dilutes them out of the picture. Or, it could simply be that smaller investors are effectively shackled to Rox and Curren until they decide to create an exit event (sale or re-listing), which could be done quite quickly if SND grows as we expect, or it could take 3-5 years or longer. Neither is a very attractive proposition for most small investors, as they either lose most of their money, or have absolutely no control over when they get their money back (although in the latter scenario, they could do very, very, well if there has not been the dilution that investors fear). What we don't know is what ROX and Curren intend, or how much their reputation with smaller investors matters to them (either personally, or commercially).
There is also a further option that has also been suggested - namely that Rox might consider an additional offer to buy out any remaining smaller investors who wish to sell ahead of the proposed delisting. Not sure how likely that is, but it would certainly provide for an 'orderly exit' and would presumably be pretty well received, given where we are today.
And then there's the other possibility - a new player comes in and makes an offer for the whole company. This is what I personally believe the changes to the ROX deal were designed to protect them against, but if it happens, I think we can be pretty certain that it wouldn't be at anywhere near 10p. Why would ROX accept anything like that kind of offer, when all they have to do to make shedloads more than that is take it private and watch the value grow exponentially? But that doesn't mean that they wouldn't be willing to consider an offer (they will likely sell within a few years anyway), it just means that any offer needs to be attractive enough to give them enough of a return to cash in (risk-free) and move on to the next deal. I have no idea what that would be, or which / how many parties might be interested in making a bid, but you'd have to imagine that it would need to be several multiples of 10p to make it more attractive than paying £8.5m for 50% of a business with market leading capabilities, contracted future revenues of $200m and a strong sales pipeline in a pivotal growth industry. That's what makes the current situation with SND so interesting.
Just to correct the reference to $200m potential revenues - that figure is not potential, it is CONTRACTED future revenues i.e. deals already signed. That’s why the value disconnect is so extraordinary - $200m in future revenues and the current market cap is £3m. Potential revenues are likely in the $Bns.
I don't think it's anywhere near over yet - I think there are going to be some further twists and turns here over the coming weeks, as the power shift takes place.
We know that Curren owns 44.88% of the company right now, with the rest (importantly more than 50%) held by relatively much smaller share holders (including PIs). With the CLNs issued to date, ROX are entitled to convert (at a time of their choosing, or automatically when the fundraise completes) their loans into 28,500,000 new shares, at which point they would hold 25%, Curren reduces to 34% and the remaining 42% is then held by other shareholders (with 'others' still being the biggest group) . When the fundraise completes, Rox will own 49%, Curren 23%, with the remaining holders dropping to 28%. And the numbers change a bit further if the additional £1.5m investment is made (post the fundraise, but there is no authority to do that yet).
So, if ROX convert immediately, Curren and ROX hold 59% between them, but importantly both are still smaller than the remaining shareholders collectively, so neither has a majority shareholding and either of them acting with the remaining shareholders could choose to accept an alternative offer (presumably that's the reason for ROX seeking the undertakings that Curren has made).
However, that does not mean that an alternative offer can't be made, it just means that all three parties (ROX, Curren and the 'rest') would have to be satisfied with any offer that was made, as all three (including the rest) have material control.
The key thing for me is that right now is the period when ROX's plan is most vulnerable - even if they convert all of the CLN's, they can't acquire more than 30% without the waiver and that's going to take time and approval from the Secretary of State. So that provides quite a big window of opportunity for anyone else who's interested to come up with an offer, or for ROX themselves to do so, as part of the 'orderly exit' proposals.
And, as I've said before, this is a business that has contracted future revenues of some $200m with a strong sales pipeline and at least one further material contract in the final stage of negotiation, so that number will rise. And today, the company is valued at less than £3m, so not much more than 1% of those future revenues. That's a huge value disconnect that other players in the market will be able to see very clearly. The question is what price would you put on it? Well ROX are happy to pay £8.5m to get half of it and they will want to see a very significant return on that investment. Even at £20m, that would still only be around 1x forward revenues, and a fraction of normal valuation in this market segment, but is still 6-7 times the current SP.
Lots still to play for here.
As of Thursday, there are now two ways that ROX can make some serious money out of this:
1. Proceed with the planed investment and delisting
2. Takeover offer from another party at a significant premium to what they have paid / are paying (10p per share).
I don’t think they would care one jot how they made the money, as long as they see a strong return on what they have invested. Hence the reason I think that this was a defensive play to make sure they win either way.
What’s the market going to make of the next contract win when that gets announced? We already know from recent RNS updates that their US pipeline is getting stronger all the time and that there is at least one more material contract being finalised, which will likely be worth $10’s of millions (potentially up to $100m) on top of the c.$200m they have already secured as future revenues. How on Earth would the market react to that kind of news?
Going to be an interesting few days / weeks here - company currently valued at around 1% of its contracted future order book. Whether it’s EM or somebody else, I can’t see the market ignoring that. Somebody is going to make a killing here. Only question is whether the market lets that be ROX, or whether others want a slice of the pie too.
Edward, just to clarify, the nominal / face value of the shares has nothing to do with the conversion rate - all of the shares they will acquire will be at 10p, so that is not a bad deal for shareholders, in fact it’s pretty good, as the total dilution if everything goes through is only about 50%. And the company then has £8.5m in cash that it didn’t have previously, so that offsets the dilution, as the company can then go forward and prosper. The big concern here is the delisting and the degree to which small shareholders are protected (or not) once the company goes private. That’s what caused the drop on Thursday.
All good questions valueseeker, hopefully we'll get some answers over the coming weeks. It also seems very odd to bury the delisting in the detail of a funding RNS, as if it's just a minor formality.
Been thinking about yesterday’s announcement and in particular the somewhat hurried additional CLN, the extensions to the exclusivity angrrement and the irrevocable undertakings that Curren has made. I couldn’t understand why the Board and Curren would do that, as it effectively commits them, but not Rox, to the fundraise and closes down any other sources of finance.
I think, however, there is one scenario where it would benefit all parties to do just what they have done - a takeover bid from another party.
We all know that SND market cap is only a fraction of its true value, brought about purely by the cash position. With support from ROX, the company’s finances are transformed and the valuation would likely rise very significantly - let’s say to a conservative £50m (it’s been at that kind of level previously, and has built its order book considerably since then).
So, for a decent injection of cash, ROX acquire a significant share of the company (50% ultimately, subject to the waiver being approved). That dilutes Curren, but the business is then back on track with its valuation rising, so he owns a smaller share of a bigger business. Everybody’s happy, but the plan has a weakness in it - what if there’s a predatory offer from another party before everything is completed (recognising that the regulatory approval is out of their control)? Another bidder could come in and offer, say, 15p per share now and take the whole lot for about £16m. How could the Board not accept that offer? But, with all of the changes announced yesterday, any offer would now be subject to ROX waiving Curren’s irrevocable undertakings, their terms for which might very well be that the fundraise is allowed to complete on the terms agreed, their loans convert and they want a minimum of x per share to agree to the takeover?
Could it simply be that yesterday’s move was to create leverage in any takeover negotiations? It seems to have been done rather hurriedly, so maybe they felt that the current valuation presents a flaw in their plans, so this has been put in place to significantly strengthen the company’s hand in the event that a third party makes an approach?
My understanding is that, technically, nothing happens to shareholders money, unless you choose to sell before the shares are delisted. You will own exactly the same number of shares in the company, but the company will no longer be traded on AIM or any other exchange (for now), so it becomes very difficult to sell your shares. At some point, ROX will want to realise the value of their investment, at which point the company might be sold, or taken public again through an IPO onto one of the stock exchanges.
I was wondering whether right now would be a prime moment for a sweeping hostile takeover, but I don’t know whether Curren’s undertakings would prevent that. He, like all other shareholders, however, will want to see the value from his considerable holding at some point, so in theory shareholders could just follow his lead and wait for the payday at an unspecified future date.
Nice find skittish
The depth of tech skills that it takes to do what Sondrel does are almost beyond comprehension. Billions of transistors on a single chip and SND is “one of a tiny handful of companies able to do this at 3nm”
Interesting change in the wording of the fundraise terms in the RNS. This latest RNS says that the fundraise will be done at ‘not less than’ 10p per share, whereas the previous wording said 10p per share. That suggests that if the share price improves between now and the fundraise, then it might be done at a higher price.
Either way, hopefully we’ll see the sp starting to reflect the true value of the company over the coming weeks.
Interesting comparison cyber. Don’t know much about them - ENSI appear to be a bit less technically capable than SND, but otherwise the businesses look similar based on the numbers in the interim reporting. Similar revenue, although from a quick skim, it looks like ENSI has smaller contracts. Their committed revenue was $75m at the interims, whereas SND have $200m and that’s also likely to be growing faster, given the change in SND’s business model. Sales pipeline of $500m at ENSI - we don’t know what it is at SND, but we know its ’robust’ and of course only a % of that will convert to contracted revenue as neither company will win every contract they bid for. ENSI had a couple of £m in cash at the half year, but more than £3m of debt, so v similar net position to SND, albeit more liquidity.
Almost identical number of shares in issue (before the placing) and yet ENSI SP is 7 times that of SND. I’d say that makes SND look an extremely attractive investment on a like for like basis. Then factor in the liquidity that the placing will provide and you can see why ROX want to invest at these levels.
If Carlsberg did placings……..
This is the best possible outcome for existing shareholders - all new shares, however acquired, to be acquired at 10p per share. Immediate finance needs sorted. Terms of longer term finance needs sorted and additional CLN terms agreed if they need more money in between . All anchored at 10p per share.
This is a material strategic investment in the company at zero discount to the current SP - that shows just how much confidence ROX has in SND. They understand the value of this business - $200m of revenues already contracted and a ‘robust’ sales pipeline.
The regulatory hurdles mentioned in the RNS also confirm how important this industry is to the UK.
Hats off to the Sondrel team - this is how all fundraises should be done.
This is a very well constructive deal - the CLN note conversion price is set at todays sp, so any drop into the raise will cost the CLN note provider too, but they will not be the only participant (or even guaranteed to participate), so it’s in their interest for the wider raise to be done on similar terms to the CLN. Clever