SurfStitch in "perilous" financial position says major shareholder!
Do you remember, one week ago, Coastalwatch’s daddy company having a swing at buying SurfStitch?
It was a thrilling piece of theatre, a demonstration, if any was still necessary, of the Machiavellian ways of business: Three Crowns Media Group, which is a major shareholder of SurfStitch but is suing SurfStitch for a content-sharing deal gone awry, offered the online retailer fifty-five mill for a company that was worth half-a-billion dollars less than a year ago.
In response, SurfStitch’s shares were place in a trading halt.
As the The Australian Financial Review reported:
Street Talk first revealed in August that Three Crowns Media Group, which is the ultimate holding company of both Crown Financial and Coastalwatch, as well as other media outlets including magazine Surfing World and snowsports website Mountainwatch, was the mysterious third party embroiled in legal action with Surfstitch over a content-sharing arrangement gone wrong.
Yeah, you got it?
At the time of the offer, Three Crowns revealed it would tell-all in a mysterious letter to be given to a favourite media outlet. The outlet, as it turned out, was The Courier Mail.
The story, which went live a few hours ago, reveals Crown’s suggestion that SurfStitch is in a “perilous” financial position and, therefore, might be well-advised to take up the offer.
Responding to an open letter from takeover predator Crown Financial questioning why SurfStitch knocked back its $55 million offer, the company refused to reaffirm its profit guidance amid concerns its cash reserves have slipped to a “perilous” level.
In a statement to the ASX, it said “it would be premature to comment on guidance at this time” and would provide a general update at its annual general meeting.
SurfStitch’s shares rose 1¢ to 18.5¢ on Thursday. The stock was placed in a trading halt on Tuesday after SurfStitch received Crown Financial’s letter demanding to know why the company was unable to meet its indicative proposal.
The proposal required SurfStitch to complete the sale of subsidiary Surf Hardware International to an independent third party for “total cash consideration of at least $20 million” and for SurfStitch to have “no borrowings and $17 million cash in bank”.
It also said SurfStitch should “have no pending litigation outside our related entities” and not be subject to an investigation by the ASX or the Australian Securities and Investments Commission.
SurfStitch yesterday confirmed ASIC was investigating the retail giant over the collapse of a $20 million deal with Crown Financial’s related entity Coastalwatch, which forced the surfwear retailer to downgrade its earnings forecast in June.
Crown Financial managing director, Joakim Sundell, raised concerns in the letter that SurfStitch was not being forthcoming about its cash balance.
“The cash balance for the company at June 30, 2016, was reportedly $21.37 million,” Mr Sundell wrote.
“If the company cannot meet the requirement of having a $17 million cash position, are you in fact telling us/shareholders that there has been a fall of over $4.37 million in cash reserves since the balance date? This would then only allow for another $1.6 million to $2.6 million fall for the remainder of FY17, which seems perilous.”
SurfStitch on Thursday said it did not plan to “respond to these questions and does not comment on or affirm any of the various assertions.”
Oh, and FCS is going to be shucked, very shortly, for around twenty-mill, the company enjoying its third owner in one year.