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Woodford – did the FCA or the bank prevent him from fully standing his corner with Kier?

By Nigel Somerville, the Deputy Sheriff of AIM | Monday 24 December 2018

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.

A spot of maths and it seems that we were all wrong! In the prospectus for the rights issue by Kier Group (KIE) we were told that Neil Woodford was sitting on 13,797,000 shares, or 14.13%. We were also told that if he took up his rights in full he would hold 22,903,020 shares, or 14.13%. We know that Woodford piled in for more shares after the rights offer was announced. So what did he end up with?

The answer to that arrived at 3.12pm on Friday afternoon as Woodford’s TR-1 was released by RNS. The form shows the increased holding as a result of his purchase of Kier following the announcement of the rights issue which took him up to 15.4%, and then the result of the rights issue itself which increased the holding further – but saw a drop in his % of the company held. The resulting holding was 13.58%.

Hang on! If he has stood his corner in the rights issue, we were told Neil Woodford’s holding would remain at 14.13% - and we know he bought more on the announcement of the rights issue, so his holding should have been around 15%, had he stood his corner.

So what might we conclude?

We know that Woodford sold out of BTG by selling shares ahead of the completion of the take-over. Given those sales took place when the share price was below the offer price, Woodford took a hit there. We also know that Woodford sold a chunk of its holding in BCA Marketplace (BCA) at below the market price – and BCA itself bought the shares to hold in treasury. So Woodford took a hit there too.

I suggest that this all goes to show that Neil Woodford was and remains utterly desperate for cash. He appears to have been so desperate for cash to fund the Kier rights issue that he sold off two other holdings at a discount just to top up his own cash coffers so as to be able to pony up for Kier.

But there wasn’t enough cash despite those moves. One wonders how the BCA share buyback was arranged: did Neil actually want to sell more BCA but the buyback facility there wasn’t big enough? For a holder with more than 10%, the details look to me to be straying into Related Party Transaction territory although I’m sure it was all legal.

Maybe Neil thought he could borrow more cash from the bank, to add to the £110 million owed at the end of November by the equity income fund – and the bank said no. Perhaps they will only lend out in proportion to the investments, and since they have fallen by 5% since the end of November he hadn’t the headroom.

Or maybe the FCA had a quiet word and said no.

We know that Neil Woodford must have wanted to stand his corner. It would be very surprising for a holder of over 14% of Kier not to have been sounded out about the rights issue and one presumes that the cash was being lined up.

But we also know that Woodford has let HaloSource (HAL) go, Netscientific (NSCI) is running out of cash and so far has no buyers and and Midatech Pharma (MTPH) is also running out of cash. I would suggest that in the past Neil would has stepped up to the plate and written them all a nice fat cheque. But he’s got no cash – all he seems to have is bank borrowings and it seem that someone either at the bank or round at the FCA (or both) is getting concerned. So no more cheques.

This is all utterly grim news for Neil Woodford, and suggests that the endgame is well upon him already. To be left scratching around to raise cash by selling the crown jewels at a discount and not being able to raise enough cash for a £5 billion fund is shocking.

And that means that further bad news for Woodford could see him forced to sell out of other assets at the drop of a hat. The result, for those shares, could be pretty catastrophic for their share prices: what would happen to the PurpleBricks (PURP) share price if he suddenly dumped his (almost) 30% holding?

I am in no doubt that the Woodford funds are in desperate, desperate trouble. I feel really sorry for his investors in the equity income fund which seems not to do what it says on the tin and is skint. I still think there is a decent chance of a suspension to the dividend payout there.

And I suggest that some mega – writedowns are coming at all three funds as the wheels come off his unquoted portfolio. After all, if he can’t stand his corner with all those hungry mouths to feed, they’ll go bust. Then we shall see the true value of his portfolio.

With his funds in trouble, no cash to stand his corner, daily walls of grim news, distressed sales, and the possibility of further distressed sales hitting the share prices of the likes of BCA and Purplebricks Neil Woodford is truly revolutionising the world of the fund manager. Is it really End game as Tom Winnifrith argued HERE?

With all that and surely either the FCA of the bank (or both) on his back, all Woodford funds are a sell.

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