shareholder letter to ceo re scar deal

From L...

Dear Peter Hutley,

I am writing on behalf of a number of investors on investor forum – HotCopper.com.au.

A lot of us are against the proposed payment to equity swap with Scarborough at issue price of less than 20 cents.

Our points are:

1. The offer from Scarborough was opportunistic and does not reflect the true value of VPG;

This is so whether comparing to NTA (95c at 30 June 2008) or P/E ratio, or implied EV/EBITDA multiples

2. The offer, if negotiated and announced to shareholders for approval, will likely receive strong opposition from the shareholders as it will cause significant dilution in value to the existing shareholders;

Look at what happened to the share price of MGX following the rights issue at 60cents/share

3. The twisted and prolonged approval process due to strong shareholders opposition, will also be likely to cause further share price volatility.

4. Management should not raise equity irrespective of the issue price only for the sake of increasing liquidity, a meager AUD35mln or less in this case.

5. Swapping 19.9% ownership of company for a mere AUD35mln would suggest VPG's dire liquidity position/desperation for cash (which may not necessarily be the case) and smash market's confidence in VPG;

(for God's sake, less than AUD67mln for 16.9% shareholding in VPG?)

6. Management may as well renegotiate the payment schedule with Scarborough or alternatively, (1). sell some assets to meet the payments due to them.

(2). Approach other funds /investors for equity at least to create some competition for Scarborough.

7. In light of the Federal Government's setting up of a AUD4bln special commercial property fund, explore with the government to see what they can do to help.

As this is obviously selling Australian assets to overseas investors for below its fair value. This is against Australian interest.

Pls make smart use of the Federal Government's move to protect the commercial property sector.

8. As any reasonable person may expect, the not so palatable deal, once announced to the shareholders for vote, will cause significant volatility to the share price of VPG, especially under the current economic environment.

Hence, pls cautiously reconsider the deal with Scarborough so as to prevent unnecessary mess under the current environment.