HEDGE FUNDS TAKE CONTROL OF SLATER & GORDON FOLLOWING HALF A BILLION LOSS
Written on the 1 September 2017 by David Simmons
EMBATTLED class action law firm Slater & Gordon (ASX: SGH) will be owned by a consortium of hedge funds following a deal that will see the new owners bailout the firm who just posted a half a billion dollar loss.
The consortium, led by Anchorage Capital Partners, have entered a debt-for-equity deal, wiping out the holdings of existing shareholders and giving the consortium 95 per cent of the company's equity.
The deal will need to be approved by shareholders at an investor meeting in November.
The consortium will also pump $50 million into the company and take total control of the company's UK business.
As a result, Slater & Gordon have emerged with a new board and a new strategy going into FY18. Both chairman John Skippen and Andrew Grech will depart as directors of the company. Chief financial officer, Bryce Houghton, will also leave the company.
This news follows Slater & Gordon's FY17 results which saw the company post a huge $547 million full year loss, including a $350 million impairment charge thanks to its failing UK business.
The hedge funds will increase Slater & Gordon's existing $40 million debt facility to $90 million.
As part of the plan, Slater & Gordon will say goodbye to its struggling UK business the hedge funds will own the UK business under a separate holding.
Hayden Stephens, the new chief executive of the company who replaced Andrew Grech in June, says these changes for the company are a pivotal turning point for Slater & Gordon.
"Today is a significant day for the firm," says Grech.
"The announcements mark a turning point and set in motion a strong plan that will deliver a new board, a focused business strategy and a very strong capital structure."
Departing chairman John Skippen says the recapitalisation plan with Anchorage is the best way forward for the struggling law firm.
"The recapitalisation agreement and the additional funding which the company's lenders have agreed to provide will permanently reduce Slater & Gordon's debt to a sustainable level and is intended to provide a stable platform for the future operations of the company," says Skippen.
"Regrettably the interests of the existing shareholders will be wiped out and for that I and the board are deeply sorry for this."
So far, FY18 has been tough for the class action firm. In July the firm agreed to settle one of the class actions brought against it by angry shareholders, which is expected to cost the firm $36.5 million.
The consortium of hedge funds has agreed to assist Slater & Gordon with settling this class action.
The firm is also facing a second class action from another rival firm Johnson Winter & Slattery (JWS), one spearheaded by shareholder Babscay Pty Ltd, and has received notification of a possible third class action.
Slater and Gordon, meanwhile, has filed its own lawsuit against UK-based Watchstone Group over the sale of Quindell.
The Melbourne-based firm is suing Watchstone in the High Court of England and Wales, alleging that the company and its senior managers made "fraudulent misrepresentations" surrounding the sale of Quindell.
Following these announcements, Slater & Gordon's value has collapsed even further down nearly 8 per cent to $0.07.
Business News Australia
Author: David Simmons