Quindell Directors Decide Against Equities First Margin Calls

LONDON (Alliance News) - Quindell PLC Wednesday said that consultant and former chairman Robert ...

Alliance News 26 November, 2014 | 5:38PM
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LONDON (Alliance News) - Quindell PLC Wednesday said that consultant and former chairman Robert Terry and outgoing Finance Director Laurence Moorse, have decided against meeting margin calls they received from Equities First Holdings LLC, meaning they have given up the right to repurchase shares transferred under a sale and repurchase deal with the US company designed to provide financing to the directors.

The news comes after the company's share price dropped sharply after details about the transaction done by three of Quindell's directors emerged. Such deals, which are relatively unusual in the UK, have come under heavy investor and media scrutiny, prompting other companies to reveal the details of similar transactions done by directors with Equities First.

Last week, Quindell Chairman Robert Terry resigned with immediate effect, saying he was sorry for the events and would never enter into such a deal again, while the company said Moorse would step down from the board after its 2015 annual general meeting, though he has agreed to remain with the company for a year afterwards to help with "handing over his responsibilities".

The apparent mechanics of the agreements being provided by Equities First are the same in each case: it takes shares as a security for a cash sum under a so-called sale and purchase agreement and takes a percentage of the value as well as a financing arrangement fee. Equities First can legally do as it pleases with the shares, but pledges to hold them and not use them for short selling. The loanees are supposed to buy back the shares once the loans mature.

However, the individuals involved also have to meet margin calls if the price of the shares taken as security for the loan fluctuates wildly, or give up the stock they transferred.

Quindell originally described the agreement its directors signed with Equities First as a "loan facility that may result in the transfer of up to 51,959,658 ordinary shares as security". However, when it clarified the deal, it dropped the word loan and said the deal was a sale and repurchase agreement intended to provide financing to the directors.

On November 5, Terry, Moorse and Non-Executive Director Steve Scott bought nearly 1.6 million Quindell shares in total, using some of the funds provided by Equities First, which describes itself as "a pioneer in stock loans". A company controlled by Scott, Bickleigh Ridge Ltd, also bought 175,000 shares using the same mechanism, it was announced two days later.

Equities First had paid a sum equal to 67% of the three-day average market value per share less a financing arrangement fee of 3% for the shares transferred as security for the loan. Terry transferred 8.85 million shares, Moorse 200,000 shares and Scott 1.4 million.

Terry used GBP1.2 million of the GBP7.5 million he was loaned to buy 1 million more Quindell shares, while Moorse used GBP61,500 of his GBP168,714 proceeds to buy 50,000 more shares and Scott used 861,647.50 of his GBP1.1 million loan to buy a further 525,000 shares.

It hasn't been disclosed what the directors used the remainder of their loans for.

Under the deal, if the Quindell share price fell to 80% or less of the value at the time the directors' security shares were transferred to Equities First, then they'd have to transfer more of their holdings to the US company or to provide cash to satisfy margin calls.

The Quindell share price collapsed from nearly 120 pence a share to about 45 pence in the days after the details of the loan deal emerged, and Terry admitted when he resigned last week that it was likely that a margin call would be made. The former Chairman said at that time he'd likely give up the shares rather than meeting the call, which wouldn't make economic sense given the steep drop.

On Wednesday, Quindell said Terry and Moorse had informed it of margin calls under the Equities First agreement, and that they did not meet the call. Terry gave up the right to repurchase the 8.85 million shares he transferred, while Moorse gave up the repurchasing right over the 200,000 shares he transferred.

Terry is now interested in 38.1 million Quindell shares, an 8.73% stake, while Moorse is interested in just over 1.0 million shares, or 0.24% of Quindell's issued share capital.

Quindell shares closed down 8.0% at 72.00 pence on Wednesday, after a small recovery over the last few trading days.

Cloudbuy PLC, ANGLE PLC, IQE PLC, and Optimal Payments PLC are the other companies to have detailed similar transactions some of their directors did with Equities First.

Igas Energy PLC Chief Executive Andrew Austin also did a deal with Equities First back in January, but the company earlier this month declined to give further details about the deal, saying it had met its disclosure requirements.

On January 16, IGas had said that Austin bought 300,000 shares in the company at 135.38 pence a share - a total of GBP406,140 - funding the acquisition by entering a loan facility and transferring up to 7.5 million shares as security. At the time, IGas said Austin is required to redeem the shares at maturity when the loan is repaid at the end of the three year term.

The facility was arranged by Meridian Equity Partners, since bought by Equities First Holdings, which provided the funding. As in the other cases, the lender was contractually prohibited from short selling or voting the shares during the term of the loan.

Igas Wednesday belatedly gave more details about the deal, and admitted it was also a sale and purchase agreement that's treated as a loan under UK tax law. It said Austin got just over GBP7.0 million for the transfer of 7.5 million shares, equivalent to 93.46 pence a share. It also said the CEO fully intends to, and is required to, repurchase the shares at the end of the loan's three-year term, by repaying nearly GBP7.9 million, or 105.33 pence a share.

The company didn't say what Austin used the GBP6.6 million of his loan not used to buy more stock for.

"Mr Austin's interests remain aligned with those of shareholders and through the arrangement he remains fully financially and economically exposed to the company's share price. Whilst Mr Austin has transferred title to the shares and waives his voting rights in these shares, he has the right with five business days' notice in the event of certain corporate actions, to terminate the arrangement and on repaying the facility to take back and vote the shares. EFH is prohibited from short selling or voting the shares during the term of the agreement but is otherwise able to deal in the shares at its discretion," iGas said.

It said Austin has a interest in nearly 11 million shares with voting rights attached, about 3.7% of the company's issued share capital, including the shares transferred under the loan agreement.

IGas Energy shares closed up 2.1% at 57.45 pence on Wednesday.

By Steve McGrath; stevemcgrath@alliancenews.com; @stevemcgrath1; and Samuel Agini; samagini@alliancenews.com; @SamuelAgini

Copyright 2014 Alliance News Limited. All Rights Reserved.

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Securities Mentioned in Article
Security Name Price Change (%) Morningstar Rating
CloudBuy PLC 2.38 GBX 0.00 -
Optimal Payments PLC 586.00 GBX -0.09 -
IGas Energy PLC 69.40 GBX 2.06 -
IQE PLC 136.00 GBX 2.84 -
Quindell PLC 111.19 GBX -1.71 -
ANGLE PLC 41.01 GBX -3.51 -
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