When you look at the register: 59% private equity in FR 11% Ray...

When you look at the register:
59% private equity in FR
11% Ray Munro
15% Management and Continuing Shareholders from acquisitions
17% Retail

You would like to think that FR (private equity) has a timetable in which to exit their investment either through a re-listing or through a takeover  - so at some point down the track retail shareholders will get the opportunity to realise their investment.

Also in the interim to satisfy the FR investors and management stakeholders, one imagines dividends will be paid when the industry recovers.

Its just that the board, senior management and the majority shareholders have shown utter contempt for the retail shareholders that it is difficult to place any trust in them.

They make a mockery of their Corporate governance statement:

"The key values underpinning the Code of Conduct are as follows:
  our actions must be governed by the highest standards of integrity and fairness;
  our decisions must be made in accordance with the spirit and letter of applicable law; and
  our business must be conducted honestly and ethically, with our best skills and judgment, and for the benefit of our people, clients, shareholders, stakeholders and Calibre alike."

Is it fair to base a buyback price based on a value you feel does not represent the underlying assets of the company?
Is it fair in 2012 to invite the public to subscribe for a minority stake in your company, to participate in Calibre as a listed entity , and then use your majority to pull the plug on the listing at the worst possible time for retail investors.
Lets hold the AGM in Melbourne even though our head office is in Perth and that's where all the other AGM's have been.

For what its worth, I have had a look at the mess we find ourselves in some detail:

Background

Calibre Group Ltd (CGH) at its the forthcoming AGM – Monday, 30th November 2015 at Level 18, 500 Collins Street Melbourne Victoria - is seeking by ordinary resolution to have the company delisted and to conduct an off-market buy back of 59,842,250 shares (16.89% of the issued capital) at 12c per share. The buy back targets all the shares of minority shareholders - shares not held by the two substantial shareholders and another 25 shareholdings of previous current directors, employees and associated

Agenda Item 5: DELISTING FROM AUSTRALIAN SECURITIES EXCHANGE (ASX) (RESOLUTION 7)

The two substantial shareholders, First Reserve, holding 59% of the share capital, and Ray Munro holding 8.9%, have indicated that they will vote for the delisting. The delisting resolution, requiring only a simple majority, is therefore guaranteed to pass.

A delisting will have serious disadvantages for minority shareholders. They include:

• Difficulty selling their shares at market price, with shares only able to be sold via private transaction.
• Once Calibre is removed from the ASX, it will no longer be subject to the ASX's Listing Rules. Shareholders will lose the protections afforded by the rules ,such as stricter continuous disclosure and corporate governance, particularly important to minority shareholders.

Calibre's move to delist represents a betrayal of the trust the minority shareholders placed in the company.

When minority shareholders responded to the invitation to participate in Calibre’s future in the 2012 prospectus - subscribing to 46 million shares at $1.63 and contributing $75 million to the company - they did so knowing that:

• they were only purchasing a minority shareholding. The two substantial shareholders held roughly the same percentage of shares then as they do now, and it was known that there were significant holdings by management;
• included among the specific risks in investing in Calibre was the risk that there may not be a liquid market for its shares.

These two risks were laid bare in the Calibre prospectus item 5.1.8.

Nevertheless shareholders were willing to accept those risks in order to participate in the company.

The prospectus listed amongst the specific risks facing the company the fact that a downturn in the resources industry, competition for project roles and loss of revenue from key clients could have a significant impact on the company. These risks have unfortunately materialised and the company has lost around 90% of its capitalised value since listing.

These risks were identified and accepted at the time of the initial public offering.

What was not known though by subscribers to the offer, nor was it counted as a key risk in the prospectus, the risk that a delisting would be contemplated if the share price fell too far.

Now, those minor shareholders, so warmly welcomed some three years ago, find themselves being pressurised to leave Calibre, with a paltry offering of 12c per share - the extreme low point on a value range of an independent assessment of the company's value.

Lets look at the reasons given by the Company to the ASX for delisting, one by one with a discussion of each:

The Directors’ key reasons for recommending Shareholders approve the Company’s delisting from the ASX are as follows:

1. a) Low level of trading on ASX

A key reason for the Company seeking to delist from the ASX is the relatively low level of trading on the ASX compared to the Company’s current share capital. Approximately 75% of the Shares are held by the top 5 Shareholders, who are believed to be long-term investors. The Company understands that these Shareholders have no intention of reducing their respective shareholdings in the foreseeable future. The Directors are of the view that this concentration of ownership amongst a small number of Shareholders limits both the ‘free-float’ of the Company’s Shares listed on ASX and investor interest in trading Shares via the ASX.

Discussion:
Nothing has changed! In the prospectus of the IPO a key risk is highlighted to would-be investors. And we quote from Section 5.1 – Risks Specific to an Investment in Calibre :

5.1.8 There may not be a liquid market for shares

There is no guarantee that an active market for the Shares will develop once the Shares are quoted on ASX. There may also be relatively few potential buyers or sellers of the Shares on ASX or otherwise at any time which may increase the volatility of the market price of the Shares.

Following Listing, FR Funds will hold 61% of the Shares, which will also impact on liquidity.
...
The absence of any sale of Shares by FR Funds and the other Existing Shareholders during [the escrow period] may cause, or at least contribute to, limited liquidity in the market for the Shares. This could affect the prevailing market price at which Shareholders are able to sell their Shares.

It is important to recognise that Shareholders may receive a market price for their Shares that is less than the price that they paid. Following release from escrow, Shares held by FR Funds will be able to be freely traded on ASX. A significant sale of Shares by FR Funds, or the perception that such sales have occurred or might occur, could adversely affect the price of Shares.

The key reason for seeking delisting was very well known to Calibre at the time it sought to list and attract $75 million from the public. It was also well known to those who invested in Calibre with the expectation the Company would remain listed.

1. b) Market capitalisation not reflective of underlying asset value

The Company considers that the limited trading of its Shares on the ASX (both in frequency and overall volume) makes it difficult for the market capitalisation of the Company (in particular movements in its Share price) to reflect the underlying asset value of the business.

Discussion:
The Company is saying that there is a disconnect between the market capitalisation, as reflected by the share price, and the underlying asset value of the Company. This is really just a predictable outcome from operating in an illiquid market and is a known (albeit unpleasant) factor to all.

One assumes the Company feels that the Company's current market capitalisation is significantly undervalued (rather than overvalued) when compared to its underlying net asset value.

If there is a disconnect between share price and underlying asset value, surely the volume weighted average price (VWAP) of 12c per share, calculated over the 30 day period to 27 October 2015 and being offered to shareholders does not reflect the underlying asset value of each share. This was a period in which less than 0.3% of shares traded in very illiquid conditions. The fact that the company is using 12c as the offer price for the off-market buy-back, with the knowledge that it is not a good measure of value, is simply disgraceful.

1. c) Listing and Related Costs

Given the low level of trading of the Company’s Shares on the ASX, the Directors consider that the financial, administrative and compliance obligations and costs associated with maintaining an ASX listing are no longer justified nor is the high level of compliance costs in the best interests of all Shareholders.

The proposed delisting is not expected to have any adverse effect on the financial position of the Company and is expected to result on savings of approximately $70,000 in annual listing fees and other registry and trading fees.

Discussion:
As mentioned above, a low level of trading was to be expected.
A $70,000 saving in the context of a company with revenue of $567 million and an underlying net profit of $19 million seems rather insignificant and an amount well worth paying to protect the interests of the minority shareholders. The compliance costs may not be in the best interests of all shareholders, but they certainly are in the best interests of the minority shareholders.

1. d) Regulation

Removal of the Company from the Official List will not result in any substantial diminution of the protection for minority Shareholders provided by the Corporations Act.

Discussion:

Perhaps in theory. However, the benefits an ASX listing include investor protections like stricter continuous disclosure and corporate governance. Delisting will certainly make it much more difficult to sell their shares!


Agenda Item 6: OFF-MARKET BUY BACK (RESOLUTION 8)

The company is seeking shareholder approval of an off-market buy back of 59,842,520 Shares (16.89% of the entire issued capital of the Company) at 12c per share.

The 59,842,520 according the Independent Experts Report represents all the minority shareholders outside of the 2 substantial shareholders and 25 continuing shareholders.

The 12c per share offer is inadequate.

The company itself has admitted, that a key reason to delist is the illiquid share register and the consequent disconnect between share price and underlying asset value. Therefore, calculating an offer price of 12c per share based on the 30 day VWAP of market trading is both hypocritical and contemptible as discussed above.

The independent experts using an alternative calculation of value based on a capitalised earnings approach. The second approach yielded a value range of between 18c and 22c per share based on an EBITDA multiple range of 2 and 2.5 times underlying FY15 EBITDA.

It would be interesting to see what EBITDA multiple Calibre is paying to acquire Diona Pty Ltd for $45M with an additional performance contingent payment of $45M (announced on 28 October 2015).


Some other observations:

Calibre’s AGM over the last 3 years since listing in 2012 has been in Perth. This year it is in Melbourne. I wonder if it has been done to make attendance more difficult for its shareholder base?

Calibre’s trading halt request to the ASX on the 28^th October 2015 gives as a reason for the request: “ [the Company] requests an immediate trading halt on its securities pending the release of an announcement to the market concerning an acquisition”. What about the delisting and off-market share buy-back bombshell?

Major shareholders to vote on delisting – the pressure point to encourage minority sharehoders to exit the company – but magnanimously hold back from voting on the buy back which will increase their share of the company.

What about the continuing shareholders, the 25 shareholders who together control another 15.1% of the company consisting of previous and current directors, employees and associated holders that Calibre expects will not participate in the buy back. Their stake is comparable to the 16.9% of the other 1,200 odd minority shareholders. They get to vote on the delisting and the buyback and they also gain an increased share of the company following the buyback.

CEO Peter Reichler purchased 200,000 shares on-market for 11.46c per share on 4^th November 2015.

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