Placings and Open Offers and How to Do Them – St Ives and Tritax

One of the things that annoys private investors is when a company does a placing of shares. This can be for a number of reasons such as the company needing funds for an acquisition, or simply because the company is fast running out of cash and wishes to stave off financial distress.

Because of the EU mandated Prospectus Directive, a full Rights Issue where all shareholders can participate in the share issuance and hence avoid dilution of their stake, does require an expensive process including the production of a full prospectus. This is of course a bit of a nonsense in that the same or other investors can buy shares in the market at the same time without reading a single thing about the company concerned, although those investors in RBS who are pursuing legal action on the basis of a misleading prospectus in 2008 might not think so. But the EU Commission is looking at this problem. The result at present is that most smaller companies go for a “placing” – in other words a sale of shares to a selected and small group of institutional and other investors (but it has become increasingly difficult for any private investor, however large their stake, to participate).

Now a couple of placings last week caught my attention. One was at St. Ives who are raising £13.8 million to help finance an acquisition. They are issuing 6.4 million shares (about 4.8% of the existing share capital, so a relatively small proportion) at 215p. The share price on the day of the announcement was 216.5p so the discount is very small (it’s really large discounts that annoy investors who cannot participate). If you wished to avoid the small dilution, you could easily buy some more shares in the market. So although there was no accompanying “open offer”, this was probably of no great concern to investors in St. Ives.

Tritax Big Box REIT went one better by announcing a placing linked to an open offer where some shares are reserved to be taken up by those shareholders not invited into the placing. In addition there was an “over-subscription” facility where you could ask for more shares than your entitlement, to be supplied from those made available to investors who did not wish to take them up. Note: one of the very few advantages of pooled nominee accounts is that because the entitlement relates to the pooled nominee, and many private investors don’t take up their entitlement, you can often obtain many more shares than expected. In addition some of the placing shares are to be marketed to retail investors via stockbrokers.

Tritax is a name you may not have come across. They are a Real Estate Investment Trust who specialise in large warehouses. The demand for these is growing to service the new breed of internet retailers and distributors. Segro (formerly Slough Estates) have also been moving their focus to this sector which has held up well in comparison with the slump of share prices in the commercial property sector more generally since the start of the year.

In addition the placing/open offer by Tritax is at 124p which is a discount of 5.8% to the share price before the announcement. But it is still at a premium to the net asset value (an important measure for property companies) and the new shares will not participate in the pending interim dividend. With a 1 new share for 11 existing shares, and the options available to investors, it seems unlikely any investors will be unhappy. So well done Tritax.

What really annoys private investors is a heavily discounted share placing where there is no open offer – Rightster (RSTR) was one recent example. They placed 200 million new shares at 5p when the previous share price was 9.5p. This company was in some financial difficulties and had undertaken a strategic review with new directors joining the board (and investing in the company). But is it fair for directors to participate in such placings which means that they obtain shares at a favourable price? One might argue that there may be few other investors willing to take up shares, but surely it would discourage such behaviour if they were unable to participate and hence were forced to suffer dilution like every other existing investor? This is one of the things that has been suggested as a way to reform the cavalier behaviour of some AIM company directors. What do you think? Or are there other solutions to this problem?

Roger Lawson

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