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By Tom Winnifrith, The Sheriff of AIM | Tuesday 19 April 2016
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.
Watchstone(WTG), the company formerly known as Quindell (QPP) has said that it turned down a share based offer from a private company for its hot-potch of useless cash burning and often fraudulent assets. That offer came from Tantalum, a company owned by mad Edi Truell of Tungsten (TUNG) infamy as I noted in bearcast yesterday HERE.
Mad Edi is clearly both bonkers and desperate. After the Tungsten fuck up he is finding it a tad hard to raise cash for his private interests. And so in early March he tried to merge them with the cash and assets of Tungsten itself. The reaction from the board was damning:
The Board of Tungsten Corporation Plc ("Tungsten") notes the recent media speculation in relation to Edmund Truell ("Mr. Truell") and his purported offer for Tungsten assets and wishes to provide a clarificatory response.
Mr. Truell ceased to be CEO in July 2015 following a very difficult period for the company and we have today announced his resignation from the board. Since July 2015, Mr. Truell has made a number of suggestions in relation to combining operating businesses owned by Tungsten with other businesses in which he has an interest, including Tantalum, a vehicle telematics business.
The Board received an outline of a new transaction structure from Mr. Truell on Saturday 19th March 2016 which, like its predecessors, did not involve an offer for Tungsten's shares but instead suggested that Tungsten's network business and the cash it expects to receive from the proposed sale of its bank be combined with certain assets in which he has a majority interest in, including Tantalum.
The resulting effect of this conceived combination would be that Tungsten's primary asset would be a minority stake in an enlarged group of disparate, illiquid assets controlled by Mr. Truell and Tungsten itself would be transformed into an investment vehicle. The Board of Tungsten has spent considerable time reviewing these suggestions, including the most recent proposal, and found them to date to be universally without merit for shareholders.
The last line says it all. The last accounts filed for Tantalum are for calendar 2014 and show sales of £18.1 million, a loss before tax of £7.885 million and negative net current assets of £2.4 million - what's not to like? Tantalum is run by some french bird and Mr Truell is said to be a great admirer of her obvious talents but to date it is hard to see why anyone woujd want shares in this cash guzzling trainwreck.
Now that brings us to Watchstone. You cannot blame it for not wanting to own shares in a privarte company that guzzles cash. It is bad enough that it has subsidiaries that guzzle cash - probably £1-2 million a month with PLC costs. Its shares now trade at c230p valuing the business at £105 million. Last stated cash was £90 million but given ongoing cashburn that is now probably c£84 million and falling.
Its business are largely frauds and no serious player will offer anything for them. The only bidders in town would be either mad (edi) or bad (Rob Terry) or both (Rob Terry) and no-one is going to risk hard cash on buying this junk, not even the mad or the bad. The Canadian operations are falling apart and face material legal claims which could dent that cash pile still further.
Watchstone expects to get up to £39 million from Slater & Gordon as it wins NIHL cases but since S&G is not pursuing such cases any more I expect it to get peanuts on that earnout. Then there is c£55 million held in escrow. Given that S&G is heading for insolvency because of the frauds it bought from Quindell it seems certain that S&G (or perhaps the administrators) will try to get that cash back. S&G has been so incompetent in its dealings with Quindell that I would not bet against that cash going back to Watchstone. We shall see. But I'd certainly risk weight it for both time and legal threats.
On that basis, assuming net cash is down to c£70 million at the year end (possibly lower if there are Candaian legal claims) the share price of Watchstone is full but not a slam dunk short.
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