Fayrewood Share Discussion Threads

[stewjames] 03/1/2009 21:31

Yes, but the part share offer will still look more attractive because this additional claim is almost certainly BS.

[etarip] 03/1/2009 14:09

If the cash offer is reduced so will the share and cash offer on the basis that there will need to be an extra £2,000,000 retained if all elect for the share and cash offer.

[old boy returns] 02/1/2009 18:17

FWY pretty much flagged the IS issue in the offer document. Sounds as though the purchasers of IS are trying it on here. I doubt they have a leg to stand on if they are claiming that the £2m ceiling on the SPA Warrantee is not valid - this is pretty bog standard stuff for SPA's and is well tried and tested. More likely they realise that they can throw a nasty spanner in the works and delay court approval of the Scheme and are hoping to be paid off to go away.

If they have realised they have bought a sh*t business at the wrong time then that is their problem and I hope they are told where to go.

[stewjames] 02/1/2009 17:45

And if the cash offer is reduced to 115p, the part cash offer begins to look much more attractive.

[davidosh] 02/1/2009 11:52

My guess would be that if they are allowed to continue with the scheme then they will be allowed to pay out around £1.15 which is why the share price has dropped to reflect that. If they cannot go ahead there will be very long delays which is a problem if looking to take the cash offer.

[scburbs] 31/12/2008 14:12

Afternoon Etarip,

The court approval requires creditors to be able to be met from remaining resources. At £2m this should clearly be possible (the £2.91m below is in addition to £1m in escrow for ISI), at £4.5m this is less clear. I suspect the ISI purchasers can appeal to the court to refuse approval. When it comes to this sort of thing the court is likely to err on the side of caution unless FWY can clearly demonstrate that the claim is capped at £2m.

The detail from the announcement is below:

"(c) The Capital Reduction

For the purposes of creating additional distributable reserves to enable Fayrewood to declare and pay upon the Scheme becoming effective a dividend to Letchworth equal to the amount of cash required to satisfy the cash consideration payable to Scheme Shareholders under the Scheme, the Scheme includes the Capital Reduction. Pursuant to the Capital Reduction, the Company's share premium account, capital redemption reserve and part of its issued share capital will be cancelled.

In order to obtain the Court's confirmation of the Capital Reduction, the Company will need to demonstrate to the satisfaction of the Court that none of its creditors (other than those who have consented to it) will be prejudiced by the Capital Reduction.

For these purposes, potential liabilities in connection with warranties and indemnities given in the SPAs must be considered. There are set out at paragraph 4 of this announcement details of possible claims against the Company under the SPAs. In order to demonstrate to the Court that such potential creditors will not be prejudiced, the Company proposes to undertake to the Court to retain and not distribute the sum of approximately £2.91 million, based on the Exchange Rate, which is the sum the Independent Directors consider to be a prudent amount to be retained in connection with such potential liabilities, until the earlier of the date upon which the Company can terminate all its obligations in accordance with their terms and the dates on which the Company's potential liabilities under each SPA expire."

[etarip] 31/12/2008 12:03

From the announcement:
'The Independent Directors therefore propose to proceed with these meetings as planned in order that the Company retains the flexibility to implement the Scheme if it is able to do so.'

What could stop the Scheme going ahead? As far as I can see there is a contractual Offer from Letchworth that is only conditional on the EGM vote and Court approval. The EGM looks like it is going ahead. If the Court approval goes ahead it means that there is still 126p cash on the table. The cash plus share alternative might not be so attractive.

I do not know what if anything the ISI purchasers can do to stop the sale of Fayrewood provided Fayrewood has enough cash to meet their claim before the final payoff. Any comments?

[stewjames] 31/12/2008 11:38

Fingers crossed for the EGM, but I have a hard time seeing how they can continue with the Letchworth offer without either reducing the cash payment, or extending the timetable. Damn ISI!

[scburbs] 30/12/2008 20:57

Only thing newsworthy here is that the claim is more than £2m, to me this is likely to be the purchasers trying it on with no legal basis. A claim for £2m was always expected based on the previous release (see below extract from previous announcement).

As Etarip says if they are entitled to a claim of more than £2m then the FWY lawyers have been incompetent and should be sued.

"Pursuant to the ISI SPA, the Company sold the entire issued share capital of ISI and SLS to the ISI Purchaser on 25 July 2008. Fayrewood's maximum liability under the ISI SPA is £2 million. As well as standard warranties and a tax covenant, the ISI SPA contained provisions for the protection of the ISI Purchaser in relation to the value of stock at completion, collectability of debtors within 150 days of the completion date and the amount of trade creditors at completion (the 'Stock and Debtor Protection Provisions').

...

The Company has been notified that there were uncollected debtors in the region of £4 million as at the date 120 days after the ISI SPA completion date. The Independent Directors believe that the ISI Purchaser will make a claim against the Company under the Stock and Debtor Protection Provisions."

[deswalker] 30/12/2008 19:11

They were already expecting a claim so some proportion of the £2mill will have already been set aside in pitching the Offer. Ofcourse any claim over £2mill will need defending in court if IS is up for the fight (which they may not be cf UMD earlier in the year).

If the Offer ends up being delayed then it will be very annoying but in the long run it could possibly work out in shareholders' favour if any final settlement turns out to be less than the provision already accounted for, and thus frees up more cash for later distribution.

[davidosh] 30/12/2008 18:28

Sadly this does not look so straightforward now and may delay the payout let alone the amount to be returned. There will also be considerable costs involved no doubt in defending any claims. With other bargains about it may be better to take a guaranteed exit price rather than wait with at least half the money invested IMO.

[etarip] 30/12/2008 18:12

We will just have to wait to see what the directors decide. If they are confident that the liability cap of £2.0 million is valid it should make no difference to the Letchworth arrangement. Further more claimants would have to prove their claim over the debts.

Further, if the clause in the contract regarding the liability cap was to fail, I expect that there would be a negligence claim against the solicitors who drew up the contract on behalf of the company.

[badtime] 30/12/2008 17:07

Lovely news...not!

[smicker] 20/12/2008 12:01

conky1 You could follow the example of the people who know best. They are all staying invested.

[old boy returns] 19/12/2008 23:43

conky1 - I am inclined to take the cash as I don't like the sound of the debtors warrantee from the IS Spa. Looks a near cert to me that the £2M ceiling on the warrentee will be claimed. The cash / newco shares alternative could turn out well if not many take it up but it could be a 2-3 year wait for a payout which has a ceiling on it. If you expect the economy to recover in the same timeframe then there could be some better prospects elsewhere.

[conky1] 19/12/2008 19:55

Should we accept the cash and invest somewhere else??? I get the feeling they are trying to short change us?? Comments please. Happy Xmas-yum yum.

[scburbs] 15/12/2008 17:59

Thanks Etarip, Indeed I was. I must watch out for the Christmas lunch effect!

[etarip] 15/12/2008 17:57

scburbs:
I think you might have been adding 29,169,638.81 pounds to 8,508,943.22 euros to get 37,678,582.

I see your later post now

[scburbs] 15/12/2008 17:46

OK, I have it now. EY have mixed both € and £. Thanks OBR.

[old boy returns] 15/12/2008 17:45

schurbs - you are adding pounds and euros. E&Y letter says they have £29.17M and EUR 8.509M which equates to about £36.6M.

[scburbs] 15/12/2008 17:34

Can anyone reconcile the cash balances?

Ernst & Young LLP think they have €37,678,582 (Page 105) which at their FX rate (Page 119) equates to £32.8m whereas they think they have £36.6m (Page 14).

[scburbs] 15/12/2008 17:15

The "best estimate" includes a discount rate so it probably assumes at least a 15% return and, therefore, the future value is somewhat higher than 28p.

[stewjames] 15/12/2008 16:33

I think we can safely throw the "best esimate" away, however it was calculated. If it had any basis in reality, there would be no point taking the part share offer since the "best estimate" is that you'll wait a considerably longer time to get exactly the same amount of money out.

[etarip] 15/12/2008 13:39

The circular document to shareholders can be found at:



There does not appear to be a detailed explaination of how the 'Best Estimate' has been calculated.