RCS - Iconik Capital KG - Anexo Plc (ANX.L) (LON:ANX) - Open Letter
29/04/2025 10:00
RNS Number : 6161G Iconik Capital KG 29 April 2025 Anexo Group plc 5th Floor, The Plaza 100 Old Hall Street Liverpool L3 9QJ 28 April 2025 Concerns Regarding Potential Takeover Bid and Shareholder Value Anexo Group Plc (ANX.L) (LON:ANX) ANX.L / LON:ANX / GB00BF2G3L29 Dear Independent Directors, Iconik Capital KG currently holds a significant stake of 3.5 million shares (approximately 3%) of Anexo plc's (https://www.anexo-group.com) issued share capital. We are writing to you to voice our utmost concern regarding the potential takeover bid being considered by DBAY Advisors Limited, Alan Sellers, and Samantha Moss. We do feel the need to be absolutely clear: as independent directors, your fiduciary responsibility demands that you act exclusively in the best interests of all shareholders, with a steadfast commitment to the rights of minority shareholders. Any Board action that undermines the interests of minority shareholders will not be acceptable. We urge you to rigorously assess any potential offer against a fair and objective valuation of the company and that you undertake an immediate and rigorous defense against this predatory attempt to seize control of Anexo plc at a fraction of its intrinsic value. · Significant Undervaluation: Anexo's shares are currently trading at a P/B multiple of less than 0.5x, a P/E multiple of less than 5x and an EV/EBIT multiple of less than 5x, a significant discount to intrinsic value and also to industry peers in the more generic legal services industry. The company is significantly undervalued from an asset value perspective as well as from a current and forward earnings perspective. · Underlying Change in Business Mix: Anexo's strategic business mix shift towards housing disrepair (HDR) claims is poised to significantly enhance its working capital cycle. HDR claims typically settle within 7-9 months, a stark contrast to the 18-24-month duration of credit hire claims. This accelerated settlement cycle translates to faster cash conversion, bolstering the company's financial flexibility, and capacity for reinvestment. Management confirmed in its most recent Trading Update that Housing Disrepair work continues to make an increasing contribution to the Group's overall performance. · Emissions Litigation Settlements: With ongoing litigation against Mercedes-Benz and other manufacturers, the potential for further substantial cash inflows is high, as these claims have already been expensed, any settlement would directly benefit the bottom line. If valued in line with the VW case that would translate into a current conservative net cash improvement in excess of £20 million from these 37,000 claims. Hearings and conferences have already taken place showing positive signs and more are scheduled to take place between now and July 2025. A positive effect on net debt appears imminent. · Debt Facilities: The Group completed two new financing facilities that resulted in significant savings in interest costs throughout the lifetime of the facilities. In addition, Anexo's finance costs in 2023 were unusually high due to a one-time success fee payment to funders of its initial Volkswagen emissions claim. The success fee payment will not recur in future periods. · Previous Approach at 150p / share: DBAY's prior consideration of a 150p per share cash offer in 2021, coupled with Anexo's current demonstrably stronger position due to a more favorable business mix, substantial growth prospects, and an imminent positive cash flow windfall strongly indicates that a lower valuation would be unwarranted. · Bond Turner Efficiency Gains: Anexo's legal services division, Bond Turner, has the potential for significant efficiency gains through the implementation of AI Large Language Models (LLMs) in case management. Since Bond Turner handles a large volume of standardized cases, AI implementation will lead to a substantial reduction in headcount (a significant cost factor), further enhancing profitability. The amount of cases managed per fee earner will increase significantly in the future. · Growing Demand for Housing Disrepair and Credit Hire: The demand for both housing disrepair (HDR) and credit hire services is experiencing robust growth, fueled by several factors. The UK is grappling with a cost-of-living crisis, pushing more individuals into the impecunious category, thereby increasing the need for credit hire services. The gig economy, with its reliance on vehicles, is also expanding rapidly, further amplifying this demand. On the HDR front, a significant portion of UK rental properties fail to meet the Decent Homes Standard, with many exhibiting hazardous damp and mold issues. Anexo's strategic positioning in both these high-growth markets, coupled with its efficient case management and strong referral network, positions it to capitalize on this escalating demand. We therefore request that the Independent Directors undertake the following actions to ensure the fair treatment of all shareholders: · Conduct a Thorough and Independent Valuation: Engage an independent financial advisor with expertise in valuing companies in our sector to provide an objective assessment of Anexo plc's intrinsic value. This valuation should be made transparent to all shareholders. · Rigorous Scrutiny of Any Potential Offer: Carefully evaluate the terms of any formal offer against the independent valuation and ensure that it provides a fair and reasonable premium for control, reflecting the company's true worth and future potential. · Categorically reject any suggestion of a takeover facilitated through the issuance of loan notes. This structure unfairly prejudices shareholders by compelling them to exchange equity for debt, fundamentally altering their investment at the current depressed share price and depriving them of the potential for equity-based returns, in particular given the undervaluation of the company. Moreover, it allows the acquirer to leverage Anexo plc's future cash flows to fund the acquisition. In addition, illiquidity of these notes will prevent minority shareholders from being able to sell them (at a fair price), which is a significant disadvantage, particularly considering the significant amount of retail investors in Anexo. Finally, the valuation of loan notes is complex and subjective, creating a potential for the bidder to undervalue the consideration offered, particularly given the information asymmetry between the bidder and the minority shareholders. · Actively Represent Minority Shareholder Interests: Ensure that the interests of all shareholders, not just the majority, are given due consideration throughout the takeover process. · Maintain Open Communication: Keep all shareholders informed of the progress of any potential bid and the Board's assessment of it. We believe that accepting an offer that undervalues Anexo plc would be detrimental to the interests of minority shareholders and would not reflect the true value and future potential of the company. We trust that you, as independent directors, will diligently exercise your responsibilities to ensure a fair outcome for all stakeholders. In any event, we are prepared to deploy all necessary measures to expose the inadequacy of any undervaluation. This includes actively engaging with the public to draw attention to the severe disparity between the offer price and Anexo plc's true worth. We are also prepared to vigorously contest the fairness and equitability of any proposed scheme of arrangement before the sitting judge, ensuring that the voices of minority shareholders are heard and their interests protected. Yours sincerely, Frank Stuber Managing Partner, Iconik Capital KG stuber@iconikcapital.de This information is provided by Reach, the non-regulatory press release distribution service of RNS, part of the London Stock Exchange. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com. 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