One of the things that private investors hate is placings made by companies to raise money in which they cannot participate. In other words, the issuance of shares that dilutes your interest in the company when it is not a rights issue and there is no “open offer” alongside. Sometimes those placings are done at a price which is a considerable discount to the open market share price, thus enabling institutional investors to pick up shares at a big discount to what you may have paid for your shares, or less than you can buy them in the market.
On the 14th December, IDOX announced their preliminary results and a placing to raise up to £20.5 million for the proposed acquisition of 6PM. There was no Open Offer included. Incidentally I do have to declare a interest in IDOX as I have been a long-standing investor in the company – indeed this was a “ten bagger” for me until the share price fell after the announcement. My holding is therefore not trivial.
The company has been well managed by Richard Kellett-Clarke who only recently stepped down from CEO to become a non-executive director so I don’t doubt the possible merit of the acquisition. The acquisition is likely to be earnings enhancing. 6PM produces software for medical applications and IDOX already has interests in this area as local government (in which it specialises) are heavily involved in delivering care. But 6PM seems to be more into clinical applications sold to the NHS which is somewhat new.
But that does not mean that a small open offer could not have been included alongside the placing. As it was the placing was completed on the day of the announcement at a price of 60p per share – that’s a discount of 14.3% to the previous days closing price and 3.8% to the average over the prior 20 days. The market offer price at the time of writing is about 66p, so private investors have definitely missed an opportunity while institutions can realise an instant profit.
Having communicated with Mr Kellett-Clarke on this matter his argument for not including an open offer was the necessity to be sure of raising the funds in the timescale required to close the deal with 6PM. Also the costs of producing a prospectus are high. However, I do not fully accept those arguments. An immediate placing to institutions followed by a small open offer for other investors (at the agreed placing price) does not seem impossible to me bearing in mind that the take up by retail investors on such offers is often low (and could be scaled back if excessive). I believe a full prospectus is not required for a smaller share issue.
In essence it’s likely to be about “can’t be bothered”, or “it will cost something” to meet the demands of small shareholders when their main interest is in keeping institutions happy. In other words, shareholders are not being treated equally with larger ones benefiting at the expense of smaller ones. Even larger private investors have been excluded I understand.
If other companies can do it properly (recent examples are AB Dynamics, a much smaller business than IDOX, and Tritax REIT) then why not IDOX?
Now there will be a vote on the placing because this is a larger financial transaction and hence there is a General Meeting scheduled for the 5th January. Shareholders should consider whether they should vote against this transaction on the basis that the directors have not tried hard enough, as I am likely to do.