Today (17/7/2014) Alkane Energy announced a placing to raise £8m to fund the acquisition of three power response companies. The placing was at 36p, when the closing price the previous day was 39.5p indicating a discount of 9%. But as with all such placings, the news had got around the market beforehand, so it’s more like a 15% discount to the share price before the news spread.
So what you may ask? It’s just another placing that prejudices private shareholders who were unable to participate (there is no “open offer” in this case). But there is one aspect of this placing that is unusual. It is being done using a “Cash Box” arrangement because the number of shares to be issued (15.2% of the enlarged share capital) would normally require shareholder approval, i.e. the calling of a General Meeting. The “Cash Box” process involves the creation of a new subsidiary company into which cash is injected and the company then buys the shell at an artificial price. Shares in the company are issued to the placees in exchange for shares in the new subsidiary thus technically enabling the company to claim it has not received cash from the issue of shares in the company.
What a wheeze one might say! But other companies have used it such as Ocado, Great Portland Estates and Drax. It tends to be used when companies are in a hurry (i.e. cannot accept the time required to call an EGM) and it also saves them the cost of doing so.
In the case of Alkane, the CEO has justified it on the basis that the company was competing to acquire the relevant businesses against a private bidder and any delay would have prejudiced the deal.
Shareholders in Alkane will have to decide for themselves whether the circumstances justified these actions, but there surely seems little point in having rules about share issuance and consent by shareholders if ways around them are allowed. Does the end justify the means is the question?
That and the general problem of placings in AIM companies, which prevents many shareholders from participating, should surely be reviewed. Unfortunately one of the difficulties is the Prospectus Directive as mandated by the EU which is totally inappropriate for small cap companies.