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Just as the management of Silver Chef (ASX: SIV) thought the struggling hospitality rental company's woes could be solved through a sale to Next Capital, an influential shareholder has fired up and called for a refreshed board.
Blue Stamp Company (BSC), a Brisbane-based investor that holds a 19.99 per cent share in SIV and is backed by a large US university endowment fund, describes a "groundswell of disdain" amongst minority shareholders to the scheme that will go to a vote on 6 September.
In July the board unanimously recommended shareholders accept the new offer from a consortium led by Next Capital for $0.70 per share, representing a significant discount on an offer made just months prior.
BSC, which is also backed by Australian high net worth investors, has owned shares in SIV since 2011 and has been increasing its stake in recent months. Now the fund is looking to exert more control over the company's future.
"Approval of the Scheme would be a very poor outcome for existing SIV shareholders," BSC director Luke Trickett (pictured) said in an email addressed to Silver Chef directors dated 27 August.
"Not even the Independent Expert (appointed by the SIV Board) could get close to endorsing the value of the Scheme Consideration. E&Y's valuation assessment of up to $1.13 per share was 32% that ascribed to the Scheme Consideration and well below what we consider to be the true intrinsic value of SIV," he said.
"The fact that Mr Allan English (Chairman) and his related entities have now (23 August 2019) chosen to retain a heavily diluted position in SIV shares (in lieu of receiving the Scheme Consideration) reinforces our view that the Scheme is a very poor outcome for existing SIV shareholders."
As an alternative, BSC is proposing a fully underwritten, accelerated, renounceable, pro rata entitlement offer to raise around $50 million at $0.31 per share. The funds would be used to pay a $35 million syndicated debt facility and fund the transaction costs and working capital of the company.
Based on its own shareholding, BSC commits to subscribe to the entitlement with $10 million together with a further sub-underwriting of up to $30 million. Based on its discussions with other shareholders, the fund is confident there is support to raise the remaining $10 million.
"We are confident that with an improved balance sheet, less restrictive debt obligations, superior execution from a motivated Management Team and enhanced governance oversight from an aligned board, the business can be turned around, generating substantial shareholder given the fulness of time," said Trickett, who prior to his life in finance was a swimmer for the Australian national team.
In his letter Trickett also called for board renewal.
"We believe the SIV Board needs to be refreshed with new candidates that have the requisite skills to see the company successfully execute on its global opportunity," he said.
In a press release, BSC claimed as Allan English and his related entities intended to retain their existing shares of 23 per cent alongside Next Capital, these shares are subject to a separate vote, meaning Blue Stamp Company's 19.99 per cent is sufficient to block the Next Capital scheme.
The fund alleged the SIV chairman's interests were "misaligned", noting he had overseen $250 million of wealth destruction in recent years.
"Blue Stamp Company sought to proactively engage with the Board of Silver Chef to support the Recapitalisation Proposal, whereby all shareholders would have the opportunity to participate in the turnaround of Silver Chef's fortunes in the years ahead," Trickett said.
"Unfortunately, the Silver Chef Board failed to constructively engage on our Recapitalisation Proposal, despite recently claiming they could not even raise $20 million from shareholders and as such needed to endorse the Next Capital Scheme."
Silver Chef's Independent Board Committee (IBC) has determined Blue Stamp's proposal is not superior to that already on the table with Next Capital, claiming there is "no certainty" it would be completed and has "been formulated without any due diligence and without any discussions with Silver Chef's financiers".
The new proposal requires termination of the scheme implementation agreement (SIA) with Next Capital, and the IBC believes there is no legal basis for Silver Chef to do this.
The IBC also claims the BSC Proposal could give control of Silver Chef to BSC at a price which is less than 50 per cent of that payable under the scheme with Next Capital.
Blue Stamp Company has retained Cadence Advisory as its financial adviser and Norton Rose Fulbright as its legal adviser in the matter.
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