Garretts' Leeds corporate partner Roland Todd has advised Alternative Investment Market-listed company Gartland Whalley & Barker on arranging a unique and controversial compulsory buy-back from investors with less than 50 shares.
Garretts helped the company float in September 1996 with a reverse takeover of Select Industries. But the value of Select Industries' shares had declined steeply over the years, said Todd, and 2,000 shareholders had only one or two shares whose value was now worth around £1.10 each.
“With brokers' charges, it's plainly not worth shareholders selling their shares on the market,” said Todd.
He said the company wanted to reduce the number of shareholders with tiny stakes, as it was too expensive having to send mail to them all at regular intervals.
“The company had already tried a free dealing offer and topping up offers to bring the shareholders' stakes above 50 shares but that hadn't worked. It asked us if there was a way it could make it compulsory. “
Todd sought counsel's opinion – Erskine Chambers' David Richards QC and Ceri Bryant – to check the legality of the compulsory buy-back.
The company will require the approval of a majority of the 5,000 shareholders with less than 50 shares and the total value of “yes” voters holdings will have to be at least 75 per cent for the buy-back (at market price) to go ahead.
The same applies to 2,500 warrants in issue. “Their exercise price is £6.70, with the share price at £1.10 the warrant holders are not going to exercise them,” said Todd.
The Daily Telegraph last week called the deal an “uncomfortable precedent” saying that the principle of compulsory sale was bad.
But Todd stressed: “This is unusual. A number of the 2,000 shareholders with only two shares had written to the company saying 'do something with these shares, we're sick of them'. It won't be a precedent used by many companies.”