confused, page-4

re: confused...lot of interest in flowcom Here is a complete article in today's AFR

Small listed internet service provider FlowCom could soon find itself owned by Telstra if major shareholder and investor Crown Financial gets its way.

According to sources close to the companies, Crown Financial, the private investment vehicle of the Sundell family of Sundell Motors fame, last month enlisted PricewaterhouseCoopers to orchestrate a sale of FlowCom to the telecommunications giant - without FlowCom's consent.

It is understood, however, that Crown Financial first wishes to place FlowCom in receivership. If successful, that would lower the amount Telstra would have to pay from an expected $21million to between $8million and $11million.

Shares in FlowCom were suspended from trade last Monday. The stock was placed in a trading halt following a dispute between FlowCom and Crown Financial regarding the interest payable on an outstanding loan relating to working capital advances made by Crown to FlowCom last year.

Although FlowCom executives on Friday maintained they had paid Crown all moneys owed, Crown has not yet withdrawn its notice of termination.



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"My understanding is that the company has the ability to pay the interest that in theory they are in default of. I'd want to see what has happened thoroughly investigated by [the Australian Securities and Investments Commission]," says Wilson Asset Management portfolio manager Geoff Wilson, who is understood to have a small shareholding in FlowCom.

FlowCom managing director Tom Amos says several of the company's 38,000 corporate customers had told him of Crown's plans to sell FlowCom to Telstra.
"FlowCom has come through some difficult times but the business is now going well ... we just had a record half ... and if you were going to do something, now would be the time," Amos says.

"Crown has a fixed and floating charge over all our assets and they hold all the cards. Plus clearly we're a thorn in Telstra's side in the regional areas."

Amos says Crown and FlowCom's chief executive Chris Ryan, who was installed last May at Crown's request, has been progressively selling shares in the company, but not informing the Australian Stock Exchange.

"Crown went from 54million [shares] in October to 49million in November and the only way we knew that was from [share registry] Computershare," he says.

"We're co-operating with the stock exchange on these matters."

It is understood the ASX has also referred the share trading, conducted through ABN Amro, to ASIC. But Ryan, a former ABN Amro employee, says he has lodged all the required documents. "In fact, I contacted the ASX to check my sales were compliant."

He says he has no knowledge of any plans by Crown to enlist PwC to sell FlowCom to Telstra.

"PwC has not engaged with me as chief executive of FlowCom," he says. But he thinks the whole situation is a "complicated mess" and one with "a pretty short fuse".

Crown executives, by contrast, say there are plans to sell FlowCom.

"If someone comes along and it's compelling for shareholders, I hope they [the board] act in shareholders' best interests," says Joakim Sundell.

But he says there has been no dialogue with Telstra. "That's not true. PricewaterhouseCoopers have been our advisers over the past 10years," he says, adding that PwC has not set up a data room over the past month to facilitate a potential sale.

Crown Financial first became involved with FlowCom in September 2002 when it began negotiations with Alcatel, which had lent FlowCom $15million, to purchase its debt for $5million. That agreement was ratified in January 2003, although Crown has actually paid only $2.5million to Alcatel and is required to pay the balance this week - on January 22.

Crown restructured the debt, converting $2million into 70 million shares at 3¢ each, $5million into debt secured against FlowCom's assets and about $7million into residual debt, which can either be converted to ordinary shares on a call option basis, or, if not called upon by the end of June 2005, can be converted to equity at the company's request. Of the $5million, $1million was then syndicated out to third-party investors.

Last April, Crown lent FlowCom more money - about $3.8million - which it used to fund the acquisitions of Karl Suleman's beleaguered ISP Froggy.com and smaller ISP iGreen. Those acquisitions helped boost FlowCom's mainly business customer base from about 31,000 to 38,000.

In October, FlowCom decided it would raise some money of its own and subsequently placed $5million worth of 2¢ shares with clients of Bell Potter and Tolhurst Noall. It is understood a number of wealthy individuals participated in the raising as well as many small cap fund managers including BT, which briefly held a 5.9per cent stake before ceasing to be a substantial shareholder in early December.

About $1.8million of the $5million was then used to repay Crown, reducing the $3.8million owed to $2million.

Since October, however, the relationship between Crown and FlowCom has become increasingly acrimonious. In November, Crown was successful in appointing Sundell to FlowCom's board, but Sundell resigned just weeks later on December 24.

Sources close to Sundell say he resigned after disputes over how the company was being run.

"There's also clear animosity between [Chris] Ryan, who's a banker type, and Tom Amos, who is more of a strategist but who has good contacts in telco land," one person says.

The already strained relationship between Crown and FlowCom soured further earlier this month when FlowCom approached Crown to ask it how much interest it owed on the outstanding $2million debt.

That led to Crown on Monday threatening to terminate its relationship with FlowCom and exercise its right to foreclose on the group's assets.

It is understood Crown had threatened to foreclose by 5pm last Friday but has extended its deadline until Tuesday evening.