Happy new year.Just got back on line and LCE has been working...

Happy new year.

Just got back on line and LCE has been working over the Christmas break. Very intriguing announcement. Most notably, there was no similar announcement from Imperial Pacific saying it would vote against the proposal (or Peter Murray or his superannuation fund). One could assume that they would all vote against the resolution but until it is confirmed it is only an assumption.

I think the penny has dropped with LCE, IPC & associates that while they have been able to acquire ECL shares at below "intrinsic" value they are now trapped in a position where there is a single shareholder who has control and will do as they please - which looks like turning ECL into a listed investment company which presumably aligns with LC's interests.

There are also substantial franking credits (circa $31m as per last annual report) which ultimately belong to shareholders and are not being distributed as dividends have been relatively small (approximately 20% of NPAT).

Further, there is basically no liquidity in ECL ordinary shares so LCE won't be able to off load its shares without depressing the ECL share price further (current market cap of $87m less than cash per proforma accounts post transaction in IE report of $111m).

So when you combine the above no wonder LCE is voting against and consulting lawyers.

Interestingly there are no disclosures of related party transactions in the latest accounts. It is difficult to believe that LC has not used the office at Chifley Place once to hold a "private" meeting. If so then this transaction should be disclosed...

Also, it appears that the resolution to be put to shareholders is to approve the sale of the "electrics" business - which is good and proper as this is required under listing rule 11.2. However, there is no resolution that approves ECL investing its cash in managed funds etc (it is referred to in the explanatory notes but is not a resolution). It also appears that there has been no application for a waiver of these rules. If follows that the movement of cash into managed funds appears to be a breach of the listing rules.

Given the above I suspect an application for a "just and equitable" winding up under section 461(k) of the corporations law might be considered.

LCE (and associates) have had a degree of experience with litigation in recent times and have been more successful than not (and Peter Murray is probably one of the most experienced executives on the ASX!).

I will be watching with interest....

That said, it would appear to me ECL has entered a new phase and it would save a lot of angst for interests associated with LC to design a scheme which removes minority shareholders and saves the million a year that it costs to have a listed company. I suspect that this will not happen....

Best regards

BSP