The only thing growing at 300 per cent a year is Eisen and Molnar bank accounts.
Afterpay changed rules for Eisen, Molnar sell-down
Given the characteristically cynical nature of its execution, Afterpay chief executive Anthony Eisen got off very lightly last week over the company’s $800 million capital raising and, with Nick Molnar, their $250 million sell-down.
Only on April 14, Eisen assured the market that Afterpay’s “strong balance sheet and liquidity position means we have no requirement to raise capital in the foreseeable future” and “downside scenario modelling suggests that the group is adequately capitalised to support operations for multiple years …” This apparent whopper – after all, what exactly has changed between then and now? – drove the share price up 29 per cent (to $28.40) that day on its April 9 (pre-Easter) close.
"The market knows Afterpay's founders are sellers of as many shares as they can, whenever they can. For Christ’s sake, they’re share salesmen!" David Rowe
What’s more, the market had been informed that Eisen and Molnar would not be trading any stock until after the release of FY20 results in August. “Anthony and Nick do not intend to sell any further shares during the next financial year,” went Afterpay’s statement right after the last capital raising, which was snuck out two days before Afterpay released the AUSTRAC audit notice it knew was coming over its deliberate failure to comply with anti-money laundering and counter-terrorism finance law.
Afterpay’s securities trading policy then prohibited selling from “the company’s year end until the business day after the release of the full-year results”. Yes, clearance could be provided by the board in “exceptional circumstances”, but even then, only when selling shares “is the only reasonable course of action available”. Which, plainly, it is not.
As if anticipating this insufficiently bendable hurdle, Afterpay’s board released a new securities trading policy … last Monday, the day before the capital raising! The new policy invalidates trading restrictions in any “other circumstances pre-approved by the board in its discretion, subject to compliance with insider trading rules”. Why even have a policy? This clause might as well read: “Whatever Anthony Eisen wants, whenever he wants it.”
An Afterpay spokesperson confirmed the board approved the sell-down under the new, abovementioned clause, and that “it was considered to be in the best interests of the company” because, among other things, “the market is expecting the founders to sell down now their voluntary escrow has expired” and “selling into the capital raise is a more orderly process for the company and avoids any market perception of an overhang of shares which could have impacted (the) outcome of the placement”.
Technically, the market could only be expecting the founders to sell imminently because the board created that expectation by empowering itself to allow share trading during the blackout period. More generally, the market knows the founders are sellers of as many shares as they can, whenever they can. For Christ’s sake, they’re share salesmen!
It is the Afterpay board’s duty to maximise the price – and minimise dilution – of any share issuance, not to manage the daily share price and forestall imagined overhangs. Allowing the sell-down alongside the capital raise had the effect of depressing (admittedly exuberant) demand for the new shares. Without the sell-down, demand would have been greater, the price higher and dilution lower. Period. But all of that was sacrificed on a tortuously constructed altar of executive director enrichment.
Consider that in the past 13 months, Afterpay insiders – Eisen, Molnar, group head David Hancock and sundry rats and mice – have pocketed around half a billion dollars selling their shares.
Afetrpay's staff continue to exercise their options into shares as the company's shares remain at record highs.
Is it really any wonder Eisen conducted “an extensive global search” for a chairman only to plump for the tractable one he already had warming the chair? Elana Rubin’s “ongoing stewardship and focus on good corporate governance will continue to deliver value to shareholders”, Eisen said on May 25, foreshadowing literally the reverse outcomes.
If the board’s securities trading policy was no hurdle, we’re sure the post-raising cleansing notice – in which Afterpay can warrant that all material information was put in the public domain – will be a cakewalk.
Of course, this capital management necessitated an out-of-cycle trading update, replete with pages of forgiving metrics each presented to illustrate the company’s trajectory to the moon. Yet the company – and let’s not forget, this is a fintech breathing daily data – did not disclose a line item as elementary as its receivables balance at June 30. Why not? It did not tell us how many customers have missed a payment or are 90 days past due. It did not tell us the proportion of its warehouse facilities drawn.
Nobody can credibly suggest the company doesn’t have this information, just that it doesn’t want us to. Sure, oodles of investors are willing to gamble on Afterpay’s momentum knowing it’s still generating losses. Nevertheless, the market is entitled to real and present numbers.
