Article in the AFR
Quintis founder Frank Wilson ringfenced from $US250m
Frank Wilson is being advised by Goldman Sachs. Jim Rice
by
Vesna Poljak
The departed founder of Quintis has a potentially $US250 million advantage over any other bidder for
the sandalwood grower.
When the company formerly known as TFS raised money in July 2016, Frank Wilson was specifically excluded from any trigger that would enable bondholders to force the company to buy them out under a change of control event.
That is still the case, even though he resigned as managing director of Quintis in March.
The change of control clause is a fairly standard feature of such offerings to protect bondholder interests. The clause has outgrown its origins as a so-called "poison put" that could be used to challenge hostile takeovers.
But owners of Quintis' 2023 high-yield debt do not have this avenue open to them if the company is acquired by an entity controlled by Mr Wilson. It means, for all intents and purposes, that bondholders cannot agitate for a bailout unless the nuclear scenario of a missed interest payment eventuates.
The details of what is thought to be a highly unusual exemption are spelt out in the prospectus to buyers of the Perth-based company's notes. The successful offer, led by JPMorgan, was used to refinance higher-cost debt that was redeemed at a premium.
It is believed BlackRock took most of the issue and the concentration of its interest means the bonds have been largely illiquid. BlackRock emerged as substantial equity investor last week with 20 million shares for a 5.14 per cent interest. It comes as long-time supporter
Regal Funds Management reduced its stake to below the 5 per cent threshold deemed substantial last Wednesday.
In the offer document, Mr Wilson is identified as a "permitted holder". A change of control event occurs when "any person or group ... other than one or more permitted holders or the issuer" becomes the beneficial owner "of more than 50 per cent of the voting power of the issuer's outstanding voting stock".
One of the conditions under the permitted holder clause is "that Frank Cullity Wilson holds a majority of the aggregate voting power".
That hurdle is significant because it means Mr Wilson would have to control any bidder.
Since leaving the business to pursue a takeover offer with an unnamed but credible investment partner, he has hired Goldman Sachs to advise on a potential transaction. UBS is working for Quintis.
At Friday's market value of $115 million, a takeover offer with a 30 per cent premium would imply a $76 million valuation on a 51 per cent interest. Mr Wilson remains the company's largest shareholder and his equity is about $15 million.
He also retains a put option entitling him to $14.8 million cash over his personal plantation interests but that cannot be struck until September 2018 at the earliest.
Mr Wilson did not comment on the covenant, nor did Quintis.
Shares of the sustainable Indian sandalwood grower were halted on Monday ahead of the release of a response to the ASX regarding a query received on May 11. The company will also update the market on the impact of "market and trading conditions" on its financial results and strategy.
The Quintis calendar is heavily weighted to the end of the financial year when it conducts most of its investor activity around its plantations.
Last week, shares of the short-seller target fell 72 per cent after Quintis
confirmed a report in The Australian Financial Review that a supply agreement with Nestle's Galderma was terminated. In a lapse of disclosure, Quintis conceded that the parties parted ways in December but that information was not conveyed to the board or senior management.
Chairman Dalton Gooding said the "communication breakdown" was "unacceptable" and "we are taking immediate and appropriate measures".
Galderma, which purchased Quintis' pharmaceutical-grade Indian sandalwood oil, is the second major customer to fade away this year after timber buyer Shanghai Richer Link.
The company is in talks with an alternate buyer in China.
