Do you guys think the Scarborough payment to equity swap deal...

Do you guys think the Scarborough payment to equity swap deal will be presented to shareholders for voting?

From discussion with the CEO two days after the announcement, sp for conversion is likely to be 10c but definitely below 20c. I saw nobody at HC agreeing with the deal given the dilution effect and the minimal equity raised (likely to be c. AUD38mln only.

I personally think that institutional investors, especially those bought at high say 1-2$ will strongly oppose the deal. Us little nemos too. HC investors have sent a petition to CEO Peter Hurley showing their opposition to the deal proposed by Scarborough.

I think the only likelihood of them proposing the deal to shareholders for approval (as it involves a director - Macabbe) is if they are close to covenant breach and the banks insist on additional equity.


My earlier conservative covenant estimate suggested that they are not likely to be in breach of covenants as at testing date of Dec 31, 2008.(refer my earlier posts re both LVR and ICR estimates) However, going forward, at the next testing date- 30 June 2009, they may, depending on the asset valuation, likelihood of economic recovery and the performance of its key property ownership and fund management business.

In any case, for a small amount of AUD38mln or up to AUD68mln (the full amount of payment, which is not likely), it is just not worthwhile to give away 16.9% of the company to sucker - Scarborough Group. They sucked VPG in 2007 and now are doing it again taking advantage of the company's circumstance.

The only benefit is that the deal indicates Scarborough's confidence in the viability of VPG. However, do we need their confirmation/recognition at all? We've got value investor - Orbis buying already. hence, the recent share price stabilisation.