Fayrewood Share Discussion Threads

[betman] 08/10/2008 10:18

FWY down 5p. I thought they were all cash now. Did they have it in Icesave ??

The encumbered money was used as guarantee - was this if the businesses sold poorly performed eg. if there was a recession, rather than just for real discrepancies at the point of sale ?

[etarip] 01/10/2008 17:47

DesWalker:
I called David Kleeman once and he was very helpful. I expect if you e-mailed or called him you would get an answer.

[deswalker] 30/9/2008 19:07

I agree. It's a puzzle. I'd compose an email if I thought I'd get a reply.

[scburbs] 30/9/2008 18:54

That was my understanding of it as well. The IS liabilities to IBM for credit facilities and Lloyds for the trade receivables financing should drop away on the disposal and transfer to the purchaser. Would be very unusual for these amounts to continue post disposal, particularly given the proceeds were less than £2m! As the purchaser is not an insignificant company I can't see why FWY would keep either of these obligations.

[deswalker] 30/9/2008 17:52

I might be wrong but to me the £14.2 includes the £4.8. The remainder would seem to be linked to IS as detailed in notes 19 and 20 of the 2007 AR.

Note, I might be talking garbage :)

[scburbs] 30/9/2008 17:33

betman,

Yes, I agree it odd. I think the definition of encumbered is that the company can not use the cash. In respect of the difference between £14.2m and £4.8m I would speculate that the company can do anything with it (e.g. they can reinvest it) except distribute it! This assumes the £14.2m is actually a net asset value test rather than a cash test, although in a company that only has cash this is the same thing. Effectively this makes it encumbered as distribution to shareholders is the only thing we want them to do with it.

Having not mentioned it before it is rather critical that the company provides some further guidance on timing that the £14.2m is released asap!

[betman] 30/9/2008 11:42

Thanks scburbs for answering the question I too was thinking. However I am still not sure I appreciate the difference in terms of distributing cash to shareholders. If it cannot be removed , its encumbered ?? I accept there may be some different legal definitions
£4.8m is encumbered ( cannot be removed ? )for potential Esprinet claims
£14.2 is encumbered ( cannot be removed ? ) for potential BM claims

[scburbs] 29/9/2008 13:56

etarip,

I read it to mean that £4.8m sits in a blocked escrow account that can't be removed until 2011 and will be used to settle any Esprinet indemnity claims. The NAV provides for £0.5m of potential claims against this asset.

I read the £14.2m to be an undertaking by the group to retain net assets (or cash) of at least £14.2m for a certain period to cover any indemnity claims. I can understand why the Banque Magnetique purchasers might want this as they would have known that there was a danger of FWY distributing its surplus cash and they do not have access to an blocked escrow account like Esprinet.

[etarip] 29/9/2008 09:55

From the Statement:
"Cash on deposit, following disposals, of £36.0m, of which £31.2m is unencumbered."
This means £4.8 is encumbered.
Also from the Statement:
"The Group holds approximately £36m in cash on deposit, £14.2m of which has to be retained for varying temporary periods"
What is the diference betweem the £4.8m and the £14.2m. Is £9.4m unencumbered and still not available. A contradiction in terms?

[swiftnick] 29/9/2008 08:40

The market seems to be valuing the shares on the basis of "take the unencumbered cash and knock off 10%".

[swiftnick] 29/9/2008 08:35

Agreed about the £14.2m, which I wasn't expecting. It would be useful to have a schedule setting out how long these "varying temporary periods" are.

[scburbs] 29/9/2008 08:04

Swiftnick,

Good summary, thanks. I think a little bit more detail on the £14.2m should have been included by the board given it has come from left field! Nothing on negotiations with Esprinet which is disappointing, provision for payments still at £500,000.

However, the reference to formal proposals is promising, if slightly vague.

Company is now stabilised with 158p of net assets before indemnity provisions and 155p after indemnity provisions.

Absolutely appalling results by Interface in the first half (£1.248m) and an astonishing loss (£429k) in the less than 1 month to disposal! At least it is gone now.

[swiftnick] 29/9/2008 07:55

So in terms of pence per share, the company has:

155p in cash, of which 134p is unencumbered. Of this, 40p "has to be retained for varying temporary periods in the light of contractual terms governing the sale of businesses by Fayrewood over the last 2 years or so", leaving 94p available for immediate distribution.

1p will be paid as an interim dividend on 21 October.

"We are actively exploring methods of returning the maximum amount of capital to shareholders in the most effective manner and we will be circulating the Group's formal proposals to shareholders in this regard as soon as practicable."

[hugepants] 28/9/2008 18:47

With this credit crunch carry-on still ongoing FWYs' cash pile is effectively worth a good deal more than it was 6 months ago. Cash is king in this market. Surely someone will make an offer sooner rather than later.

[scburbs] 28/9/2008 17:57

manouk2,

Yes, I agree it would be much better for FWY to reach an agreement with Esprinet to free up the cash.

However, if they can't reach agreement or can't quickly find a purchaser for the company or can't do something like a tender offer then they should liquidate the company. In reality I am just saying they should do something and do it quickly as there is no value for shareholders in FWY sitting on lots of cash. If the negotiations are not working, the takeover offers are all opportunistic and another tender offer doesn't work for tax reasons then the sooner they get the company in liquidation the better.

The liquidator will be able to distribute surplus cash after the contingent liabilities. This should be in the region of 130p with c.20-25p held back for later distribution.

A liquidator would normally be able to make a first distribution within 6 weeks. However, as you say, they will reserve for everything that could be a possible liability and would certainly reserve Euro6m for Esprinet and £1m for Interface.

If these are the major contingent liabilities then that would equate roughly to the numbers above. Clearly if there are other significant contingent liabilities (e.g. Banque Magnetique) that need reserving for then liquidation may not be an effective option.

[etarip] 28/9/2008 16:27

Possiblity of liquidation after all contingent liabilities have been negotiated and tax liabilities agreed.

[manouk2] 28/9/2008 15:49

scburbs--2591----The problem of liquidation is that the board hand over responsiblity to a professional accountant to negotiate an end to any contingent liability in respect of warranties given to purchasers of businesses. Knowing Kleeman's skills,he probably will be unhappy at the thought of putting his money in the hands of others,and accountants aren't always very commercial. Also,a liqidator will never take any risks if he has personal liability--eg. for tax---so a liquidator will take the cautious route,as he clutches his pi policy,which means delays---and this is,in my view,not very appealing to the FWY board--which means they have been taking their time,I would have thought,to come up with a solution,just as they did with the tender offer last year.

[scburbs] 25/9/2008 12:27

Recent falls seem to be a good buying oppo so I have bought some more over the last few days. Hopefully will know by Monday whether that is a good decision or not.

[scburbs] 23/9/2008 14:47

Full marks to management for getting out of UMD at the right time. Esprinet's enlarged business has been having a torrid time. In H1 turnover was down 19% and the Spanish combined operations were loss making! No indication that this is anything other than market problems, integration difficulties and the loss of a contract.

However, with Esprinet struggling and the acquisition integration not having gone well it may be harder for FWY to extract itself (i.e. buy out) its remaining indemnity obligations to Esprinet which last until 2011.

ftp://ftp.esprinet.com/Documenti/Investor/ComStampa08/PR2Q08-v6-1.pdf

If FWY can't find a buyer at close to its cash balances, I would favour putting the holding company in liquidation and making an initial distribution of the current surplus cash (less safety margin). Further distributions would then be made when the company receives the remaining Interface money and then when the Esprinet indemnity is released.

This should permit a distribution of about £1.30 within about 6 weeks followed by the remaining 20p as the remaining amounts are received or the issues resolved.

The interim announcement next Monday is the time for the company to show its intentions and either sale of the company or liquidation seem the two sensible options (if another tender offer is considered risky from a tax perspective). If they are not making progress with the sale of the company or any indemnity negotiations with Esprinet then now is the time to put the company into liquidation and start returning cash.

[etarip] 13/8/2008 09:13

There is no timescale for this. See previous posts 2585 and 2586. However we may be lucky and get some news soon. The directors seem committed to get the cash back to shareholders.

[betman] 12/8/2008 17:29

This is now on the final rundown following EGM vote. Is there any timescale for finalising a cash return to shareholders ?

[gengulphus] 24/7/2008 15:08

It's there now:



Gengulphus

[deswalker] 24/7/2008 11:11

I guess the EGM is over now. Should be an RNS shortly.

[etarip] 07/7/2008 14:42

The purchasers of UMD must after about around 18 months have a good idea as to whether they are likely to make a claim under the warrantees. The directors must know what if anything was/is likely to be claimed. Therefor, there might possibly be a deal done to release the warrantees on the payment of an ageed amount.

Another possibility is that some form of tender or arrangement be made so that those shareholders wishing to get out earlier with less do so and those willing to wait do so with more later.

[deswalker] 07/7/2008 14:10

The only problem here is the 6 mill euro warranty for the UMD sale which expires in phases up to Sep 2011. If that is dead money then there is some upside from the current share price but not much. If something can be figured out to release this cash (an insurance policy of some description for instance) then there's clearly a decent upside here with virtually no risk.

At the moment the market is discounting this 6 mill euro as being tied up for another three years but personally I think the Directors have something else planned and so I continue to hold. It's virtually a free option after all.