Short seller VGI Partners launches $75m IPO

Short seller VGI Partners launches $75m IPO

The hedge fund behind the short selling attacks on Slater & Gordon and Corporate Travel Management has launched a $75 million initial public offering (IPO).

VGI Partners lodged the IPO this morning, with ordinary shares being offered under at a price of $5.50 per share, implying a market capitalisation of $369 million.

The hedge fund already has a fund listed on the ASX - VGI Partners Global Investments (ASX: VG1). This entity has also announced a concurrent equity raise which those interested in the parent's IPO need to participate in.

IPO participants must join in the $300 million equity raise being conducted by VG1, which includes a $98 million placement (41.8 million new shares) to investors in VGI Partners' unlisted funds and a pro rata renounceable entitlement offer to certain existing shareholders of VG1 to raise $202 million.

The offer price of the equity raise is $2.34 per share, representing a discount of 4.9 per cent to the closing price of the shares on 7 May 2019.

Participants in the VG1 raise will receive a guaranteed entitlement to participate in the IPO in a defined 4:1 ratio. This means that a $4,000 investment in VG1 will entitle an investor to a $1000 allocation in the IPO.

In total, the amount raised between the two entities will be $375 million.

VGI executive chairman Robert Luciano has explained the reasoning behind the VG1 equity raise and barrier to entry into the IPO.

"The focus of the IPO is on strengthening alignment with our long-term investors," says Luciano.

"We want our investors to have the opportunity to benefit as owners from our collective future success. That's why participation is available only to existing investors in VGI Partners' unlisted funds, individually managed account holders and VG1 shareholders."

"This capital will be available to support and grow the business, whether through acquiring shares in VG1 (should the opportunity ever emerge during any times of share price weakness) or to seed new investment strategies with clear adjacencies to our existing areas of expertise."

VGI partners was established in 2008 and manages over $2 billion for individuals, family offices and the VGI Partners Global Investments fund. The company is based in Sydney, but has offices in New York and Tokyo as well.

During CY18 VGI had revenue of $64.8 million and profit after tax was $34.9 million, a sharp increase from a profit of $11.2 million the year before.

The hedge fund is currently wholly-owned by its partners Robert Luciano, Douglas Tynan and Robert Poiner.

At the completion of the IPO VGI Partners will be owned approximately 80 per cent by the three partners and approximately 20 per cent by new shareholders.

While the company does operate in short selling, these positions only make up approximately a quarter of its portfolio.

The majority of its investments from the global investments fund are in major international corporations including Amazon (9 per cent), CME Group (12 per cent), Colgate Palmolive (9 per cent), MasterCard (7 per cent), and Linde (6 per cent).

The group's 'Master Fund' was launched in 2009, with the majority of the portfolio invested offshore.Luciano says the company expects to have $66 million on the balance sheet available for investment following the IPO and after covering the costs of the VG1 equity raise.

"This is an important step in the evolution of VGI Partners. We are looking forward to the next ten years of generating acceptable risk-adjusted returns on the capital we manage, and in turn growing the profitability of VGI Partners," says Luciano.

The entitlement offer will close on 6 June at 5.00pm, with VGI's shares expected to commence on the ASX on 21 June.

VGI Partners is the firm behind the widely publicised short selling attacks behind Slater & Gordon and more recently Corporate Travel Management (ASX: CTM).

The Brisbane based CTM entered into a trading halt in October following a 176-page report from VGI explaining its short position on more than $54 million worth of shares in CTM.

VGI pointed to 20 red flags including allegations CTM had overstated its global footprint with "phantom" and "ghost" offices in several locations, while the fund questioned CTM's unusually high EBIT margins and believed declining cash flows were at odds with claims of strong organic growth.

The report did not completely knock out the travel agents who reported key figures up during the first half of FY19, with revenue up 23 per cent to $212.2 million, underling NPAT up 20 per cent to $42.6 million, and total transaction value up 31 per cent to $2,951.5 million.

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