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By Nigel Somerville | Monday 10 July 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.
AIM-listed Milestone Group (MSG) has had a colourful history recently when it comes to raising money. There was the cash which didn’t arrive which the company ‘fessed up to rather late in the day. There was an RNS dated 3 August last year which announced a placing which was already announced in the company’s Interims in June 2016. Now we have a new investor ponying up £1.5 million at 0.29p against a share price of 0.14p when the company was surely running on fumes.
The company tells us that the lucky donor of £1.5 million is Para & Co (UK) Ltd, which is providing loan notes against the eventual total while we wait for Milestone to set up a General Meeting to approve the issue of enough shares.
According to Companies House, Para reported assets of just £40 and liabilities of £2000 in its results to February last year (released in November). Perhaps that is why the announcement comes today but with the first of two drawdowns totalling £400,000 coming due this Saturday, for it doesn’t look like it has much cash to spare.
But the price of the conversion is a mystery. Approx 0.29p per share is more than twice the price on Friday. For a company which was surely teetering on the brink that seems generous to a fault.
So what is going on here? Is it a death spiral deal and we’ve not been given most of the details? Perhaps that explains the statement that Para has undertaken not to hold more that 29.9% of the company.
I have no idea, but surely the Nomad would have forced out anything which was missing, even if it was Cairn! Surely?
But given the figures that the company will have 1.772 billion shares in issue following this transaction, and that Para is set to receive 523 million shares, that 29.9% figure seems safe. So why the statement?
Ah yes, that £1.25 million outstanding from the failed placing in October, at 1.5p. Discounting that from the total equity is enough to bring up the 30% mark. Is that why it is there, even though that missing £1.25 million is held on the balance sheet as a current asset?
So to borrow Cynical Bears analysis, here is what we are asked to believe:
Para: how much do you need
MSG: £1.5 million to keep the lights on
Para: ok fine, but what about the issue price – we don’t want to go over 30%
MSG: ah yes. 0.29p should do it – provided we eventually get that outstanding placement money in
Para: Right then, 0.29p it is
Of course, £1.5 million is not enough to keep the wolf from the door: interims to March showed that it had net current assets of MINUS £124,305 even assuming that the £1,25 million from the failed placing was good money. It would seem that another placing is round the corner, them.
So why has Para paid all this money at 0.29p per share instead of, say, 0.1p? Surely the Nomad and company could have gone to the Takeover Panel and got a whitewash?
It seems like madness to me, or is there something the market has not been told?
I have no idea, beyond the fact that the market price for the shares is now only 0.15p bid. On that basis, the market seems as confused as I am.
And on that basis, I wouldn’t get involved.
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