Learning from Bonmarche Collapse?

31st Jul '19 by RustySpanner

7 comments 794 reads

I've lost money in this so would not want a similar mistake in the future. But why would the executive sell off their shares and how were they sold to Philip Day at less than the quoted value to private investors 'Bonmarche's Chief executive Helen Connolly and finance director Stephen Alldridge offloaded their shares yesterday ...Last night Connolly, 47, sold 42,542 shares to Day for just over £4,868, with Alldridge getting almost £58,245 for his 508,910 shares' from https://www.thisismoney.co.uk/money/markets/article-7202187/Bosses-womenswear-chain-Bonmarche-sell-entire-stakes-retail-tycoon-Philip-Day.html

And then suspension of trading from tomorrow https://www.insidermedia.com/insider/yorkshire/bonmarche-to-suspend-trading-from-start-of-august with delay in Publication of Annual Financial Report from PWC.

How do situations like this develop? What were the signals that I missed?

Naive questions, but I may not be the only one to ask them.

Unlock with Email

Unlock with Google

Already have an account?
Login here

Rusty2

31st Jul '19

I think there have been plenty of warning signs over the last 2 years, declining EPS forecasts, poor trading, profit warning, lots of excuses for falling sales. If you read the SCVR you will probably find lots of information. I don't know why Stockopedia rates this share so highly.

For me declining EPS and growth would be reasons not to invest. High street retail is struggling anyway apart from a few exceptions, such as JD Sports Fashion (LON:JD.)

Directors selling their shares just before suspension looks like insider trading to me.

Gromley

Hi Rusty,

I'll try to contribute more to this later, but I think this is a useful and timely reminder that if anyone is still holding these shares they need to sell them TODAY unless they want to be left holding shares in an unlisted company.

These shares will not trade again once suspended.

RustySpanner

Insider trading? Something underhand perhaps. Might the PWC report shed any light?

Hey Gromley. So will the shareholder have no comeback at all? Morally, this looks like theft to me.

I hadn't kept up to speed with the story over the last few weeks but I note the following timeline that I think answers a couple of questions here.

26-Jun-19 The company issued a trading update and changed their recommendation to say that shareholders should accept the offer.

27-Jun-19 Day announced that the offer would close on the 12th of July (meeting the previously given commitment to provide at least 14 days notice)

1-Jul-19 The BoD announced that they had accepted the offer with their personal holdings. Given their recommendation on the 26th June - I do not see how this could be construed as insider trading.

15-Jul-19 Day confirmed that as of the closure of the offer 'he' had an effective 93% of the shares. (At this level as I understand he had the right - but not the obligation - to force the remaining shareholders to sell at the offer price. The announcement does not indicate that he would do that though.

19-Jul-19 The company announced that the shares would be suspended on 1st August and would not relist.

So in terms of the last knockings of all of this:

From the 26-Jun announcement from the company that the game was up, shareholders had two weeks to accept the offer (11.445p) or sell in the market at slightly below.

And from the 19th Jul announcement of the de-listing there was a further 2 week window to sell the shares in the market (there were some shares traded during this period and it looks like 7p could have been achieved).

I do not really think that anyone still holding the shares can really blame anyone for their failure to sell.

Anyone still holding the shares has not had anything stolen from them, they still hold the same percentage of the company as they did before. However, they won't be able to sell the shares unless they can independently find a buyer. The company may offer to buy them back in the future (but most probably at a lower price).

In the event that the company pays out a dividend in the future, remaining shareholders will get it and if the company is subsequently relisted or acquired then there could be a payout.

As a very long (and indeterminate) term investment there could still be upside here if Day turns this around. In theory there are regulations to protect the interests of minority shareholders, but I cannot comment on how robust these protections actually are. Remaining shareholders will also be entitled to receive the ARs and attend AGMs.

I have a tiny holding in a company that de-listed 7 1/2 years ago and I still get the AR and AGM invite. I've never attended, but if I really wanted to sell my shares I might turn up and make a nuisance of myself and then offer to be bought out. I doubt, however, that it would cover my train fare.

1st Aug '19

An expensive lesson for me. I still think that the ethics of this stink, and am surprised that there has been so little media comment about it.

I take a different view Rusty. A number of struggling retailers are quite binary bets at the moment - if they can survive and get things even vaguely back on track then there are potentially rich rewards for patient investors.

However on the flip side if they run out of money and cannot raise any more then the investors get zero (for eg £DEB - where in fact I would question the ethics of a particular player).

Whilst it might be hard to see (and I doubt it was deliberate) I think that Philip Day has done investors a favour here.

I actually bought when the bid came in, because for me the risk reward profile changed.

Instead of a potential gain of maybe 3x (from the pre bid price of c.18p) vs a a potential loss of 100%, there was instead a potential gain of maybe 4x (@from c. 14p) vs a potential loss of only 20% down to the bid price.

Of course it didn't pan out and I lost money here too, but on the balance of information that was available, I still take the view that it was a risk worth taking.

What very much changed the metrics though was when the board issued another profits warning and decided to recommend the deal. This said to me that they were probably running out of cash and were unable to refinance. So I would conjecture that in the absence of the bid shareholders may have got nothing or faced a highly dilutive fund raise giving them much less than they actually got from the bid.

The question of ethics I could really see would be if Philip Day had actively made it difficult for them to refinance in order to achieve the takeover. I'm not aware of any evidence that this was the case here. (Although as mentioned above I do have some concerns on conduct surrounding the Debenhams (LON:DEB) situation)

Learning from Bonmarche Collapse?

Unlock the rest of this article with a 14 day trial

About the Author

RustySpanner

7 comments

Unlock the metrics for all these stocks and more...

Unlock the metrics for all these stocks and more...