Perth-based Coote Industrial Ltd yesterday hinted at the sale of some of its assets and warned that asset write-downs may be incurred in the current financial year.
Coote also said it expects a significant improvement in its financial performance in the 2010-11 financial year.
A statement on the company’s future directions was just one of a total of 12 statements issued for various reasons yesterday, 10 from the company, one from a major shareholder and one from the ASX advising that the trading halt on Coote shares had been lifted with the sale of a major asset confirmed.
Coote has been the subject of a proportional takeover offer from its major shareholder Elph Pty Ltd, which would see Elph end up with 35% of Coote’s issued shares.
That lengthy offer has been extended until June 9, when Elph said it will end, having declared the offer "final".
The Coote board on Monday again recommended the offer to its shareholders.
Coote also said on Monday it had also reached agreement with Elph on the terms of a $42.6 million equity capital raising to be underwritten by Elph.
Elph told Coote shareholders to consider why they should be thinking of subscribing to the issue at 16c a share when they can get 26c a share from Elph.
Coote shares traded unchanged at 23.5c, below the offer price, and a big premium to the offer price.
The proceeds of the one-for-one non-renounceable rights issue will provide Coote with additional working capital, pay down debt and meet obligations with other shareholders, the company said.
"In addition to underwriting the Entitlement Issue, Elph has agreed to immediately extend to Coote a subordinated bridging loan of $10 million, secured by a second-ranking charge over all the assets and undertakings of Coote, to provide working capital," Coote told shareholders in its future directions statement.
"The amount due under the loan will be offset against Elph’s obligations under the Underwriting Agreement for the Entitlement Issue. Under the loan, interest is payable at the 90 day bank bill swap rate plus a margin of 5% p.a. (reset at the beginning of each quarter).
"The Entitlement Issue will be non-renounceable and will be fully underwritten by Elph. Elph has also committed to take up its full entitlement under the Entitlement Issue.
"Two of Coote’s other substantial shareholders, Thorney Holdings Pty Ltd and Equity Trustees Limited (as responsible entity for SG Hiscock and its funds) (“Substantial Holders”), have supported the Entitlement Issue by committing to take up their entitlements, and have also entered into general sub-underwriting positions of $2.8 million and $1.4 million respectively.
"Elph has also entered into sub-underwriting arrangements with other third parties."
A separate statement from Thorney yesterday revealed that it had cut its Coote Holding to 5.18% from 7.76% with the sale of 6.26 million shares.
At the completion of the rights issue and takeover offer, Coote said it will undertake a review of its business in order to maximise shareholder returns.
Coote warned that it is possible that the review would result in some non-core assets and potentially entire businesses being divested.
As well, the review may lead to write-downs on the carrying values of some assets for the current financial year.
The board currently was unable to estimate the amount of possible write-downs, Coote said.
The uncertainty of current trading conditions and the range of potential outcomes of the strategic review made it impossible to provide exact earnings guidance for the next financial year, Coote said.
Several of the company’s businesses were expected to show materially improved revenues and margins, however, and the possible divestment of businesses with negative earnings contributions also would prove beneficial, the company said.
"Hence, the board expects a significant improvement in the financial performance of the company for the coming financial year," Coote said in a statement.
The company has also finalised the terms of the sale of its South Spur Rail Services business to POTA Holdings Pty Ltd, a joint venture between Qube Logistics and DP World.
Under the revised terms, POTA will pay approximately $26.75 million for the business and additional rolling stock built by Coote’s Gemco Rail business.
The proceeds of the sale will be used to reduce tax liabilities and pay down $17.1 million in debt.
Coote will record an accounting loss on the sale, managing director, Mike Coote, said.
"We are pleased to have executed documentation for the sale of South Spur, against the background of very difficult conditions for the company," he said.
Coote said yesterday that, "On the basis that $41.0 million is raised under the Entitlement Issue net of costs, Coote’s consolidated net debt is expected to decrease from $118.8 million as at 31 March 2010 to approximately $77.1 million upon completion of the Entitlement Issue (after adjusting for the expected impact of the sale of the South Spur Rail Services business and for debt reduction during April 2010).
"The capital raising, together with the sale of South Spur Rail Services and the associated debt reduction and extension, will achieve what the Board believes to be a more conservative gearing level and debt profile, which will allow the business to re-focus on the
