Every now and then there is a financial result so staggering that you can wonder if the company can – and in this case should – survive.
But that is what happened to listed law firm Slater and Gordon which used the last day of the reporting season to reveal a $547 million loss for the year to June against a market value of just $27 million.
And yet Slater and Gordon will survive as a consortium of hedge funds have cemented control of the company, injected new capital, a new strategy and will support the company while it comes out of its near death experience.
Slater and Gordon will remain a listed entity, with Anchorage committing to remain a shareholder for at least three years.
The restructure will exclude the UK business, which will be spun off into a separate company wholly owned by the senior lenders.
The new plan, revealed on Thursday night around 7.30, will see hedge funds, led by Anchorage Capital (which had been sniffing around the Ten network) swapping the debt they are owed by Slater and Gordon into a 95% of the company’s shares. That process should be finished by mid-November.
Slater and Gordon shares had earlier closed at 7.8 cents.
The consortium will also provide an additional $50 million of funding (taking the total to $90 million) and get sole ownership of Slater and Gordon’s troubled UK business called Quindell which has caused all the problems.
The deal also involves the embattled law firm agreeing to settle a class action with aggrieved shareholders (as previously announced).
Included in that full year loss of $547 million, was a $350 million impairment in the value of the UK business, restructuring costs and continued poor performance in its key personal injuries business in Australia.
That was a better result – if that can be it true – than in 2015-16 when the company reported a total loss of $1.02 billion, which included impairment charges of $814 million against the UK business.
The UK operation was bought for $1.3 billion in 2015 – the impairments over the past two years have totalled $1.164 billion. And the total loss for the two years is $1.567 billion, which normally would have meant corporate death for a small to medium sized industrial.
The 2016-17 results show that the UK disaster, the bad headlines and other publicity have had a negative impact on the Australian business.
It posted a $67 million loss in the last financial year as fees continued to decline and it suffered an adverse movement of work in progress and payments to former owners. Its UK business lost $98.5 million, compared with a previous loss of $64.5 million.
But hope springs eternal.“Today is a significant day for the firm. The announcements mark a turning point and set in motion a strong plan that will deliver a new board, a focused business strategy and a very strong capital structure," said Slate & Gordon’s new chief executive Hayden Stephens.
The advent of the Anchorage Capital consortium has seen a board clean out with chairman John Skippen and CEO, Andrew Grech both leaving. Chief financial officer Bryce Houghton will also leave.
The new board will be led by James MacKenzie, a former director of rival class action firm Maurice Blackburn, who has been helping Anchorage’s search for a new board.
The consortium of lenders has agreed to inject an additional $50 million into an existing $40 million working capital facility set up in May. Of the $50 million, $25 million will be directed to the Australian business and $25 million to the UK business.
Slater and Gordon told the market back in February it had to rely on "the support of its lenders to continue as a going concern".
An ASIC investigation found no wrongdoing, a class action is now in the final stages of settlement and the company hopes to finalise its debt for equity swap in mid-November.
To stem the departures of the firm’s lawyers, a new management incentive plan will be introduced, facilitating the equivalent of 10% of the company’s fully diluted share capital to be available over time.
