Classic Animoca. They sneak out this updateon the same day as the unicorn capital raise.
So what have we learnt:
Animoca’s disclosure practices andcorporate governance have sank to new lows. Commiserations to all those whosold shares this calendar year without knowledge that each of these materialtransactions had already taken place. There was no explanation as to whyeach transaction was not disclosed to shareholders once finalised, most probably becausethere is no valid reason. It is the latest example of the leadership team’squestionable ethics.
Animoca’s opaque reporting continues. Theannouncement relates to a Convertible Loan Agreement, Subscription Agreements and twoacquisitions. Yet, there is no clarity on the timelines. What was the sequenceof these transactions? When did they actually occur? Why is it that Animoca areprepared to make several fluff announcements per week, but are not prepared todisclose to shareholders when a material transaction has taken place?
In the first quarter of 2021, Animoca werein desperate need of cash. The structuring of the Convertible Loan Agreement with TrueGlobal Ventures demonstrates this: “an interest rate of 7.5% per annum with theamount drawn down repayable by the issue of 11.1 million ordinary shares ofAnimoca Brands priced at A$0.35 per share or by way of cash at the election ofTrue Global Ventures”. Why pay 7.5% interest if the company is cashflowpositive and/or profitable? Why let True Global Ventures elect to convert thedebt to shares at A$0.35 per share? Why not raise these funds through a capitalraise (as per the Subscription Agreements) and save the 7.5% interest perannum? Why was all the funding (A$16 million) required? Note that Animoca donot provide even a single sentence specifying what the funds will be used for.Past experience would strongly suggest that they are to be used for generalworking capital purposes.
As evidenced by the May 2021 cap raise at A$1.10 per share, the company’s valuation can increase dramaticallyin the space of a few months (see also Dapper Labs). Therefore, why were all ofthe above transactions priced at A$0.35 per share? This is why transaction dates and timelydisclosures are vital for shareholders. A lot can happen in 3 months. What haveAnimoca got to hide? Why the substantial delay in disclosing thesetransactions? Clearly some people were in the know, which is why prices startedto climb on Primary Markets.
Helix Accelerator acquisition. It cost 7.3 million shares ofAnimoca to acquire 60% of the issued capital in Helix. Is Helix operational?What has it done since the first (and only?) accelerator program in early 2019?Helix has a 50% ownership of Helix One, which is the vehicle that holdsequity/tokens from the first cohort of accelerators, such as the Sandbox. Whatis the value of these holdings?
Acquisition of Sanrio Digital. Cost A$8.3 million payable infully paid ordinary shares of Animoca Brands priced at A$0.35 each. SanrioDigital as an operational business appears to be almost defunct. There havebeen little, if any, new game releases or product developments in the past 3 to5 years. Sanriotown.com had 3.5 million registered users in its heyday, butsuffered a major data breach in 2015. It has failed to recover from this andthe platform now appears to be inactive with no customer support. Don’t befooled by “Sanrio Digital has generated lifetime revenues of approximatelyUS$14.8 million”. It has been operating for a very long time. Current annualrevenues are minimal and have been declining for several years. All up, itappears to be an exorbitant fee to pay for what amounts to the use of the HelloKitty brand. That Yat will benefit handsomely is likely to be the primaryrationale for this transaction. The last sentence is interesting: “Theacquisition by Animoca Brands of Mr Siu’s ownership stake is therefore subjectto approval by the shareholders of Animoca Brands; such approval will be soughtby the Company at the next Annual General Meeting expected to be held as soonas practicable.” Shareholders could vote down this transaction (assumingAnimoca will ever hold another AGM) or alternatively could propose that thetransaction is settled in cash. For a company that is now valued at circa A$1.10per share, why pay for an acquisition in scrip that values your company at a68% discount?
Judging by the majority of comments onthese threads, most investors are happy to drink the Kool-Aid. Hats off to theleadership team, they appear to be cunning operators. Could they have picked abetter time to release some questionable transactions than on the same day thatmost investors were blinded by greed and exuberance?
