Constellation Healthcare Share Discussion Threads

[rivaldo] 19/1/2017 14:55

I have another tax question - can anyone help with how the total consideration is allocated for calculating the CGT gain in the 2016/17 tax year? Would you include the additional $0.43 of Notes in your sale proceeds and calculate the gain on the entire $3.36, or is just the initial $2.93 of cash taxable this year with the Notes only taxable when repaid?

[flagon] 16/1/2017 13:56

If this is held in an ISA would one receive the sterling equivalent of $2.93 per share without any witholding tax being applied ?

[inomario] 13/1/2017 10:12

Even if you give zero value to the promissory note, the cash on the table of 240p at current rates compares to the current price of 225-227p.

Surely the discount should be narrower given that the deal is about to close.

[flagon] 13/1/2017 10:00

5th December 2016

Constellation bid leaving me bittersweet
Last week one of my big holdings Constellation (LON: CHT) was bid for by the CEO/founder Paul Parmar, backed by US private equity. CHT was a key, high-conviction holding for me.

Breaking down the bid, there was 235p in cash and 35p of a Promissory Note. We should ignore the cheeky "Promissory Note" which matures in 7 years, and hence the offer price is effectively 235p. Given this company is 100% US$ earnings, when you convert the offer back into $ it's a pretty small premium.

I'm unhappy with the bid, as I had high conviction the share was heading towards 300p. It had a decent pipeline of acquisitions and was now debt-free. On the flip side, I have made a decent return so I can't complain too much.

Mr. Parmar, the CEO, owned 52% already, so it looks like the deal will get done. Also, it is unlikely there will be another bidder. There is a big break fee in place to dissuade new entrants, and as I said, the CEO own 52%!

It's crucial for Management to have skin in the game, but this is an example where the rest of the shareholders are relatively powerless to do anything when the CEO has a majority, even if the price is too low.

Paul Parmar is not a popular individual, and if you read his blog you will understand why. In my opinion, some of the more colourful stories of his past led to UK fund managers never giving CHT the rating he wanted, to raise more equity for his acquisition strategy. So he's teamed up with US private equity to execute the same strategy away from public markets. I wouldn't be surprised if we see a NASDAQ IPO in a couple of years at a much higher multiple.

Promissory Note presents potential opportunity private investors

Many fund managers, including myself, will find it difficult to own the Promissory Note because many have restrictions that funds can only hold listed equity. This, in my view, is what's causing the big discount to the 270p total bid price. For private investors who might not mind holding a 5% coupon note, this creates an arbitrage opportunity whereby today shares can be bought for 213p that are ultimately worth 270p. As I say, it's not for me, but worth highlighting.

Link ->

As of now $2.93 translates to £2.40

[inomario] 13/1/2017 09:34

Can anyone explain why the shares are trading at such a big discount to the expected cash payment which should happen in a few days?

[rivaldo] 09/1/2017 13:49

Cheers melody9999, that is useful.

The $2.93 cash consideration is now worth around 241p with the pound falling further - another two weeks of falls before the 25th would do nicely!

[melody9999] 08/1/2017 09:29

Thought the timetable would be of use to easily see:

Event Time and/or Date

Last time for lodging the Form of Direction 11.00 a.m. on 13January 2017

Last time for lodging the Form of Proxy 11.00 a.m. on 16 January 2017

Last time for lodging the Form of Declarations, Voting Agreements and Tax Forms 11.00 a.m. on 16 January 2017

General Meeting of CHT 11.00 a.m. on 18 January 2017

Record date for payment of Acquisition Price 6.00 p.m. on 25 January 2017

Termination of the Depository Interest register 6.00 p.m. on 25 January 2017

Closing of the Acquisition Expected to be 26 January 2017*

Cancellation of admission of the Common Shares to trading on AIM Expected to be 27 January 2017*

Receiving Agent commences payment of Acquisition Price to Shareholders Expected to be 27 January 2017*

[gargleblaster] 29/12/2016 00:22

239.8p is baked into the cake at current exchange rates. PIK's must be worth something - I would be tempted to get out at 252p - if they get there!

[stuffee] 28/12/2016 14:38

greasy

This will be a superb deal for Parmar and his new pal Chinh Chu,of CC Capital, buying Constellation at £70m below FinnCap's valuation and there is no way they will want to miss it. I feel shareholders should still vote against which will force them to rebid at a sensible price in sensible currency.

[greasynut] 28/12/2016 10:50

Trouble is, if the take out is voted down you are stuck with Parmer in charge.
The deal is set up as a win-win situation for him. He has shown that he doesn't give a toss about minority shareholders, so there is not much point sticking with him.

This sort of deal should be illegal, but as it is not at least PI's can exit without a bloody nose.

[stuffee] 28/12/2016 09:28

Gary

I fear sufficient shareholders (92% including Palmar) have signed the proxy forms in favour of the offer, in the mistaken belief the PIKs are worth $0.43 (35p) per Constellation share and the offer was worth 270p as stated in the original press announcement. I believe the transaction still requires the approval of the majority of the minority and I will be voting against.

If this succeeds, I believe it will become one of the most scandalous MBO steals of the year. Don't forget FinnCap, the advisers, valued Constellation at 310p (with further upside) three months ago.

[rivaldo] 28/12/2016 09:05

This does seem to settle it:

"As of the Latest Practicable Date, CHT has received Voting Agreements from Shareholders representing 91.95 per cent. of the Common Shares. Of these, CHT has received Delaware Voting Agreements from Shareholders representing 86.72 per cent. of the Common Shares (which include the Parmar Controlled Entities) and UK Voting Agreements from Shareholders representing 5.23 per cent. of the Common Shares. Further details are set out in Part 5 of the Proxy Statement"

The core $2.93 is now worth almost 240p at the current exchange rate as the pound has weakened still further - let's hope it continues to do so until late January!

[gary1966] 28/12/2016 08:12

Have I read this right that it is all done and dusted as they already have acceptances for over 89%?

[stuffee] 19/12/2016 08:32

Hrundi

I do not think we can assume the PIKs will be repaid if there is any future listing. They could be issued by CHT Holdco, which is acquiring Constellation. Constellation could be listed or injected into any quoted vehicle leaving the PIKs in Holdco to wither. Based on the current share price, the market also considers these PIKs to be virtually worthless. With a discount rate of just 5% and most holders based in the UK, I fear there won't be much we can do if Palmar decides to ignore them when maturity comes round in 7 years.

[gargleblaster] 19/12/2016 08:16

stuffee - yes I received a consent form from AJ Bell.

[hrundibakshi] 18/12/2016 22:09

Retail investors account for less than 5% of shareholders so it will take some of the large holders to reject this for our voice to be heard.Institutions at the moment are far more flighty than they have been and I think they will not want to get involved in some protracted takeover when the CEO is a majority shareholder and we are not covered by U.K takeover law.I do disagree with the Telegraph that the PIK's are worthless as I would imagine that the special committee are well aware of Parmar and CO's ultimate destination for this company and equally aware (as I have previously stated) they would need to be repaid before any US listing. I would imagine that John Johnston released the following statement with gritted teeth - "This deal will provide the capital that Constellation Healthcare Technologies needs to grow its business at the rate that changes in its market demands while at the same time giving an excellent return to shareholders since IPO." This flies in the face of the proactive investor interview that he gave when he said that CHT was the investment of a lifetime or words to the effect of.

[stuffee] 18/12/2016 20:43

I agree valuable comment in today's Sunday Tel on attempted MBO by Paul Palmar. I have always been concerned the PIKs will yield zero value until all the massive new debt has been repaid and even then how can we be sure Palmar will ever repay them, when no interest is actually payable?

The S Tel estimates the PIKs are "virtually worthless" and "On every level, this looks a bad deal; the offer should either be increased, or shareholders should reject it and make Mr Palmar pay the costs."

They refer to FinnCap's recent target share price of 310p "with further upside".

I do feel if we all play hardball, Palmar could be forced to pay a fair price. Why should we give Constellation to Palmar at a £70m discount to FinnCap's value and give him and his backers this profit or possibly a multiple of this in a few years?

I will certainly reject it but have not yet received voting form. GargleBlaster, have you received yours?

Palmar needs 89% voting in favour to complete. Hrundi, I feel if many private investors oppose, we might succeed in stopping this, but I so agree with you that it would be great if anyone contacts major shareholders such as Legal & Gen, Hargreaves Hale, Richard Griffiths etc. Maybe worth covering other bulletin boards too.

[hrundibakshi] 18/12/2016 19:49

Thank-you for the post re today's Telegraph - The only way our votes will count is if some of the small institutional holders get behind us. Retail investors account for such a small % of the total shareholders that it wouldn't matter if we all voted against we still cannot change the outcome. I suggest a few calls to the people named in the holding RNS announcements - explaining that we are all being royally shafted by Parmar - is about the only way they may sit up to what is going on. Especially when they realise that the company is worth double the current offer that has been put on the table and Parmar has more to lose than anyone if he can't end up with his precious Nasdaq listing. All of this is my own personal opinion. My hunch etc

[gargleblaster] 18/12/2016 18:52

That's what I have done.

[deltrotter] 18/12/2016 14:30

Flagged up in business section of Sunday telegraph as a dodgy bit of practice... Suggests voting against.

[hrundibakshi] 15/12/2016 16:54

Don't hold out for a higher bid but equally don't think these loan notes are duff. Here is my reasoning:Parmar along with CC Capital are buying out CHT for a PITTANCE with the sole intention of taking it private, giving it a bit of window dressing and maybe another bolt on and then are going to list on Nasdaq. If any of you have looked into my previous post that ties CC Capital with CF Corp ,a $600m blank check IPO, (CFCO) then you can see my theory. (It is just a theory, a hunch or whatever you want to call it)So if I am right Parmar's true valuation for CHT is $600m as opposed to $300m. This higher value puts CHT on an EBITDA multiple of 12 instead of the 6X that he is getting away with here.Note the valuation was conveniently done when the dollar was pretty much at its strongest against sterling and that the go-shop period is probably the shortest possible length allowed under Delaware law - and as luck would have it it ends on Christmas Day.So all in all Parmar has played us for fools and is in effect stealing the company off us by not applying an appropriate valuation multiple for the business in the sector in which it operates.Going back to the loan / promissory notes. If he wants to list on the Nasdaq these will have to be settled first and under the terms of the SPAC IPO a business has to be acquired within two years. Considering the launch was back in May then the clock is ticking for them to find an acquisition. I wonder what it will be?!This is all in my very humble opinion - if there are grammatical errors please excuse me as English is not my strongest language.

[rivaldo] 15/12/2016 15:27

Richard Griffiths has now gone above 4%:



Del, absolutely, could be just in it for the turn. Hopefully more though.

[deltrotter] 14/12/2016 07:57

Could well be just a tickle riv. Basically a free bet on the rest as well. Why not?

He should have his cash back in his account in say 2-3 months.

[rivaldo] 13/12/2016 23:24

What's going on here then - the Welsh Wizard Richard Griffiths has turned up with over 3% of CHT per tonight's RNS:



What does he see here I wonder? Is he going to organise a shareholder rebellion for a better mechanism than the duff Loan Note? I'd be surprised if he's bought in for the turn to 230p as it wouldn't seem worth his while (though on further consideration, perhaps 2.8m shares times 8p or so each is worth a tickle).