Slater and Gordon shares were once worth $7.85 at the end of March 2015 (or $2.8 billion), but with that rather expensive adventure in Britain which sent it over the edge and into the hands of a bunch of hedge vultures who rescued the company, the shares are now all but worthless.
And once the 2016-17 annual meeting is over on December 6 the hedge funds and private equity groups that soaked up the company’s debt as it collapsed, will own 95% of the issued capital and existing shareholders will hold a pittance.
The shares ended at 6.8 cents yesterday (Monday) as full details of the recapitalisation were released (it was first revealed on August 31).
The reasons for the deal was made clear at the start of the annual report:
"The Recapitalisation is required for Slater and Gordon to avoid insolvency. It is intended to provide Slater and Gordon with a sustainable level of senior secured debt and a stable platform for its future operations.
"As of 30 June 2017, Slater and Gordon owes a total of $761.6 million1 to its Senior Lenders under the Syndicated Facility Agreement, which is the primary source of Slater and Gordon indebtedness. A large portion of this debt (approximately $375 million) was drawn to partially fund the acquisition of Quindell Plc’s Professional Services Division in 2015.
"If the Recapitalisation is not implemented, the Directors consider that Slater and Gordon will not be in a position to repay any amounts due under the Syndicated Facility Agreement when they become payable (including amounts that have already fallen due on 29 May 2017). Accordingly, the Directors consider that, without implementation of the Recapitalisation, Slater and Gordon will become insolvent.”
But Slater and Gordon’s long suffering shareholders will play little part in that future and their fate was laid bare in more than 1,000 pages of documents filed to the Australian Securities Exchange on Monday – the notice of meeting is 274 pages alone. Existing shareholders will have no option but to approve the deal.
In a finding of brutal reality independent experts KPMG found that the severe dilution is a better option than placing the company in administration where the shares will be worthless (as shareholders in the failed Ten network found out). Existing shareholders will end up with just 5% of the new company after the revamp is approved.
Slater and Gordon’s senior lenders led by America private equity group, Anchorage Capital Group will hold the other 95%.
About 6.5 billion shares will be issued to the funds holding Slater and Gordon’s $1 billion-plus debt pile. Shares will then be consolidated on 1 for 100 basis.
That means existing shareholders blown up by of the rescue of the company – most of whom didn’t deserve to be tiny part owners of company valued at just $24.2 million at Monday’s close.
The rescue plan will salvage Slater and Gordon’s Australian business and cast off the UK operations that brought the company undone after their $1.3 billion purchase turned bad.
The rescue plan values Slater and Gordon’s shares at between 0.3 cents or 1.1 cents each, meaning the 351.4 million shares currently on issue will be worth between $1.05 million and $3.87 million.
This compares to the $15.5 million in fees Slater and Gordon’s legal and financial advisers will receive for completing the deal.
Slater and Gordon existing chairman John Skippen apologised to shareholders over the deal.
"Regrettably the interests of existing shareholders will be significantly diluted and I and the board are sorry for this," Mr Skippen.
The recapitalisation will mean that many of Slater and Gordon’s existing shareholders will be left with parcels of shares valued at below $500, making them unmarketable – but the company says it may consider a buyback of these unmarketable parcels after the recapitalisation of the company.
The documents also revealed that Slater and Gordon plans to hive off its deeply troubled UK business into a new entity. The separation of the UK and Australian businesses will insulate Slater and Gordon’s local results from the earnings losses in the UK.
