By Tom Winnifrith | Thursday 11 May 2017
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.
Oh dear, the curse of wretched Quindell (QPP) fraudster Rob Terry strikes again. Slater & Gordon (SGH), the Aussie poltroons driven to the point of bankruptcy because it bought worthless assets from Quenron says it is to launch a claim for £600 million ( the amount it paid) against Quindell - now renamed Watchstone Group (WTG). Slater claims that when it bought the assets it was a victim of "fraudulent misrepresentation." Oh Dear.
Watchstone has cash of c£80 million having paid a £500 million special dividend to its shareholders. It is trying to sell its remaining operating businesses but since they are either frauds or pretty worthless and - in some cases - face legal claims from pissed off customers, that won't raise much. Meanwhile it is still racking up PLC costs and its legal bills are about to skyrocket.
To be fair, the Aussie poltroons have yet to provide any evidence that Quenron misrepresented its assets. Slater & Gordon had plenty of evidence that Quenron was a fraud from top to bottom. This website had exposed its accounting policies as crook, shown up dodgy deals with a convicted Nigerian fraudster, with Jon Stretton Knowles of Life on Marbs infamy and much worse. But S&G insisted when doing the, company destroying deal, that it had done full due diligence.
I cannot blame S&G for trying it on but having been sent articles on this website showing that Quenron was a total fraud its bombastic protestations that it had done full due diligence and that this was a cracking earnings enhancing deal may well come back to haunt it.
As for Watchstone, at 137p, it is now capitalised at £63 million which is a discount to cash. Unlike the rather stale bulls such as Evil Knievil I have always valued its worthless businesses at zer. That in itself may be charitable since they seem to be cash consumers with contingent liabilities (legal claims). The question is how much of Watchstone's remaining cash will be gobbled up in PLC costs but - more pertinently - in legal costs. The share price is telling you quite a bit but, I suspect does not fully discount, the horrors of corporate litigation. There is certainly no rush to buy Watchstone.
Clearly until we see S&G's evidence we cannot assess the merits of the case. Perhaps it has some smoking guns. I suspect it does not. You will remember that at the point of disposal Quenron had bank overdrafts on call and no cash and was burning cash. S&G could have bought the worthless Quenron assets for £100 million. Quenron's banks would have forced it to accept that deal. That it opted to pay £600 million shows that S&G was run by complete imbeciles. Buying a proven fraud is moronic. Paying six times more than you needed to is just mega moronic. The same imbeciles are still in charge at S&G. I cannot say I have any faith in them and thus, at this stage, I do not expect their case to prevail. But it will burn away a good chunck of Watchstone's cash before failing and until it is concluded there can be no more dividends. that has to make Watchstone a sell even though its shares trade at such a discount to cash.
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