The week before, it was 10-15%. Last week, it was 20-25%. Now, it's 30-40% of the stock being held by the "SGH mob". Each week, it seems to keep on changing.
Now, there are the die hards on board, but even among the AR16 Top20, the shareholding concentration was only 82M or 23.27% of the overall SGH shareholding base. Indeed, the number of shareholders holding 100,000+ shares only totaled 436 out of a shareholding base of 20,367 shareholders.
The following shows the real shareholder spread from AR16:
|
Column 1 |
Column 2 |
| 1 |
Holding |
Number of Ordinary Shareholders |
| 2 |
1 - 1,000 |
4,471 |
| 3 |
1,001 - 5,000 |
8,178 |
| 4 |
5,001 - 10,000 |
3,281 |
| 5 |
10,001 - 100,000 |
4,001 |
| 6 |
100,001 - Over |
436 |
| 7 |
Total |
20,367 |
So, I don't quite see how, where or why "the SGH mob" control even remotely near 30-40% of the share capital as you have suggested. Perhaps, maybe 10-15% (largely because of Grech's, Fowlie's and Evans' holdings, but not much else, unless still handcuffed by virtue of escrow still being in place).
SGH will not be going private but for reasons other than what you have suggested. Nor, for that matter will there be any DFE.
Why, under any conceivable scenario, would the banks ever want to give up their higher grade of security which they already have in place and which ranks in front of everyone else including creditors, shareholders, disbursements, tax etc (ie: all except for employee entitlements), in favour of a lesser grade of security which would then rank behind employees, creditors, disbursements, tax, etc (as well as then having to be shared equally with the existing shareholders, even if massively diluted)?
Similarly, why would the banks ever take a haircut on their loans in circumstances where they are still going to get something significant or decent (and very likely substantially north of any of the mooted haircuts being talked about)?
Regardless, even if a DFE was even remotely contended, the banks would have to (*) take a haircut, (*) do the DFE, (*) provide new working capital, and (*) resist all the trade creditors (>$430M at AR16) who then would very likely come out of the woodwork. Against all this as a backdrop, it is very doubtful that the banks (even if remotely interested in doing so) would ever agree to any of the suggested arrangements absent the interest charge being substantially upped from its current 2.5 - 4% range.
More likely, under such a scenario setting, interest would be re-rated towards an 8-12% range, all things considered (maybe at the lower end of the range on the retained debt, but certainly at the higher end on the newly minted working capital).
The "SGH mob" therefore will not save SGH. The only thing that will save SGH is if they now move hard, fast and deep on cutting their OPEX, jettisoning marginal /non-core businesses and re-inventing themselves as a much smaller business operation. Certainly, the number of staff on board needs to be further considered as a 16% drop on 2015 peak figures is nowhere near the grade of cut that the banks are very likely demanding in order for SGH to remain afloat.
SGH needs to get back to a position of 25%+ margins (without any of the cute EBITDAWs in place) and to do this, it needs a continuing workforce well south of 3,000, not north of this.
Perhaps, then, your option 3, in the following post might work:
Post #:
22777337
But again, if such a scenario were to be in play, then the likely charging fee by the banks would not be $10M, but more likely $30+M (even if spread over time).
As it is, at Jun16, SGH's average interest rate was circa 2.5% with an interest rate sensitivity of $2.121M on every 100 basis points rise. Increasing this therefore to 8% would result in a 550BP rise for an ~$11.67M adverse interest charge impact on the variable component (80% of total). Adjusting this also to the fixed component would further up the interest charge by +$2.91M, for an overall potential impact of +$14.6M. So, a $10M added charge is not likely to do it, but a charge at double the rate of the increased interest burden might well do it. Hence the reason why, regardless of scenario, SGH still needs to take the ax savagedly to OPEX and headcount.
For now however, judging by the banks' reaction last week, they consider that SGH management and their advisers (ABL + Moelis) are still not taking matters seriously. If they were, they would have turned up with a DFE, hair cut, OPEX reduction, headcount slashing, business transformation, board letting, management retiring solution. The fact that all they came with was the DFE /hair cut meant that the banks were negative on the proposal, not favourable. Arguably, the controlling management shareholders simply didn't get it. Still, don't.
SGH is not too big to fail. It would simply be a bigger mess to sort through if it were to fail. But, then again, most failures are nearly always a mess to sort out so SGH would neither be unique or different in this regard, except that it would also have legal receivers put in place (other law firms to still manage the various practices), as well as the banks' receivers, etc, if it failed.
