A 250 shares for one security swap will potentially give hybrid security holders a controlling 54% of the troubled paper merchant if they all accept the terms. According to the company, hybrids who knock back the $14 offer are likely to be out in the cold after the deal goes down.
The tortuous wrangling between PaperlinX and its step-up preference securities investors (hybrids) is coming to a head with the confirmed offer to swap 250 ordinary shares for every hybrid security. The hybrid investor support group (PaperlinX PIGS) has already knocked back the contentious deal but the board is confident it will be picked up by a good number of investors with a short-to-medium investment time frame.
The majority of hybrid holders are a long way off from the original investors who got burned with the $100 securities when they were offered in 2007. Since then the securities have dropped 88% and most of the original investors bailed out, taking whatever they can get. The swap offer is pitched at making it attractive to the new investors, representing a 16.7 % premium at the closing prices on 21 August. The company warns those hybrid holders who do not accept the offer that they are likely to become minority security holders with potentially less influence over the future direction and control of the PaperlinX SPS Trust.
There are few conditions to the offer and no minimum acceptance condition, which means that whoever takes it up gets the PaperlinX shares. It is unlikely that sufficient numbers will accept to change the majority control of the company.
The alternative is that the hybrid PIGs will continue with a legal challenge already before the courts to force a better deal, which is been contested. According to the company, a protracted legal challenge is likely to materially disrupt and undermine the company’s operations and stakeholder and financier confidence.
The hybrid/share swap offer comes ahead of what is sure to be a rambunctious AGM in Melbourne on Friday where Andrew Price, CEO, will front his critics and supporters. He said he is confident the shareholders will pass every motion proposed by the board.
The AGM will also be seen though the frame of a more assertive stance by the company to potentially libellous comments about its ability to operate as a viable concern. Jeremy Martin, president of the Paper Industry Charitable Trust in the UK found himself having to issue a public apology for comments he made at an industry function in March. In a statement he said, I made comments… I now recognise were understood by many to mean that PaperlinX is insolvent, cannot pay its debts and is a credit risk. I retract my comments in their entirety and I apologise for any embarrassment caused.
This heightened level of scrutiny is likely to keep the AGM a little more sedate than forecast.