Barry Critchley, Financial Post Published: Friday, September 18, 2009
To the barber shop we go
Barry Critchley, Financial Post Published: Friday, September 18, 2009
On the surface, the combination doesn't seem to make sense.
-Allen-Vanguard Corp. has its shares listed, which implies participants believe the Ottawa-based company has equity value;
-The issuer has been under some financial difficulty for about a year after telling the market it had reached an accommodation agreement with its lenders to defer a quarterly principal repayment. Earlier this month, Allen-Vanguard announced another agreement with its lenders whereby the interest payments were extended to Sept. 14.
-Last Saturday, Allen-Vanguard, its lenders and Phipadelphia-based Versa Capital Management executed a binding agreement whereby Versa will buy Allen-Vanguard. While the exact terms weren't disclosed, Allen-Vanguard said "all shares, options, restricted stock, warrants and other securities in Allen-Vanguard and any related rights will be cancelled on closing of the transaction, with no consideration paid to holders."
-On Monday, shares of Allen-Vanguard were suspended from trading on the TSX, pending a delisting review. That suspension was made by the TSX while Allen-Vanguard will oppose the delisting.
So what squares the circle?
The simple answer is that Versa, which entered into an exclusive arrangement with Allen-Vanguard last April, didn't offer enough cash to make all the owners of the securities whole. Accordingly, those who owned the equity -- including the company's management team -- and those who owned the $231.6-million of term and bank debt at the end of June, are forced to take a haircut.
In other words, there wasn't enough to go around, not only for the bankers but also for the equity holders. "Versa has negotiated concessions on the debt and are paying it down and getting it restructured," said David Luxton, Allen-Vanguard's chief executive.
At least two groups -- Allen-Vanguard's trade creditors and its employees -- have reason to be pleased with the deal as the company will continue to meet its obligations to them.
End of story.
Not quite. A group of Allen-Vanguard shareholders have voiced their frustrations far and wide. The former owners wonder how management could sell off a public company that wasn't operating under CCAA protection, without a shareholder vote. Others have mused about the company's timely disclosure obligations.
"There is a lot of outrageously false information being disseminated though the sentiment underlying it -- disappointment -- is understandable," said Luxton, who added that prior to the sale the company was "clearly operating as a going concern and supported by its lenders as a going concern. And it was in a very intense process of negotiations with a very serious prospective investor. [But] you don't know the outcome until you get to the outcome," he said.
So how come the shares -- which traded at 10¢ last Friday -- continued to be listed given that Allen-Vanguard hadn't met the TSX's listing requirements for a period of time? Luxton said that companies "are always working to try and realize value for shareholders. As long as you think you may be able to negotiate for that, you don't want to see the stock stop trading. Unfortunately the deal that could be done, at the end of the day, didn't provide anything for shareholders."
The TSX said that it doesn't comment on specific companies. On this deal, a court will get the final say and decide whether the transaction is fair to all parties.
bcritchley@nationalpost.com
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