(Alliance News) - Mountfield Group PLC on Monday said it has conditionally agreed to sell its operating businesses in a management buyout and become a cash shell instead, planning to raise GBP3.1 million in a share placing and look for new investments.
The Wickford, Essex-based commercial flooring and specialist construction company has agreed to sell both Mountfield Building Group Ltd and Connaught Access Flooring Holdings Ltd.
Mountfield Building Group will be sold for GBP1.7 million to Mountfield Holdings, composed of GBP113,334 cash plus assumption of MBG intra-group debt. Connaught will be sold to Connaught Group for GBP2.3 million, of which GBP842,188 will be in cash and the remainder the assumption of a Connaught intra-group loan.
The buyers are owned by Chief Executive Andy Collins and Executive Director Graham Read, who will resign from the AIM-listed company on completion of the proposed sales. Cash received from the management buyouts will be used by Montfield to help pay off bank debt and trade creditors.
Mountfield's operating profit multiplied to GBP1.13 million in 2018 from GBP203,895 in 2015. While there was a GBP278,322 drop in 2019 operating profit to GBP850,851, the company had at the time viewed this as resulting from "problems with a particular contract which were unlikely to be repeated".
However, the first lockdown in March 2020 brought Mountfield's growth "to an abrupt halt" and it reported a steep drop in half-year pretax profit in 2020 to GBP80,605 from GBP719,056 a year before.
Mountfield Non-Executive Chair Peter Jay explained: "The company's trading position has not improved since 30 June 2020, with turnover, operating profits and the levels of secured turnover continuing to run at levels not seen since the recession of 2008 and 2009. The directors anticipate that the group's operating profits in 2020 are unlikely to be significantly above break-even."
This drop in profitability has hurt cash flow and it has becoming "increasingly difficult to support the costs of maintaining the company's AIM quotation". Additionally, company directors are no longer willing to keep providing personal guarantees for Mountfield's bank overdraft facility.
Should the current trading pattern persist longer than expected, or further deteriorate, Mountfield said it may not be able to continue as a viable business in its current form.
Jay said: "The directors, therefore, concluded that the solution to the company's present problems that offered an opportunity for shareholders to see value accruing to their ordinary shares would be for it to dispose of its two trading subsidiaries, Connaught and MBG, with the purchasers agreeing between them to assume all of the company's liabilities, leave it free of any debt and for it to become a cash shell. At the same time, the company would effect a fundraise to provide it with the funds required to retain its AIM listing and enable it to seek to acquire an asset or business that has potential for growth and profitability."
The sale constitutes a fundamental change of business and thus requires shareholder approval at a general meeting, which will be held March 2.
Approval for the placing will also be sought at this meeting. The placing will be of 1.57 billion shares at GBP0.001975 per share, raising GBP3.1 million before expenses. Mountfield shares closed at 0.60 pence on Friday and were suspended from trading before the London open on Monday.
Shareholders representing an approximately 55% stake in Mountfield have submitted irrevocable undertakings to vote in favour of the resolutions, the company said.
The sales will mean Mountfield no longer has any trading businesses or activities and will become an AIM Rule 15 cash shell. It will be required to make an acquisition constituting a reverse takeover, or be re-admitted to AIM as an investing company, within six months.
Failing this, its shares would then be suspended from trading. Admission to AIM would then be cancelled six months after suspension if the reason for suspension has not been rectified. Mountfield intends to pursue a reverse takeover transaction, though has not yet identified any potential targets, as this will be the new board's primary responsibility once Collins and Read are gone and new directors replace them.
Following its transition to a cash shell, Mountfield intends to change its name to UK Spac PLC, a special resolution to approve this change will also be proposed as soon as possible after the deal completes. Spac refers to a special-purpose acquisition company, an increasing popular vehicle for new listings, particularly in the US markets.
Mountfield has requested temporary suspension in AIM trading of its shares until the general meeting to approve the decision completes on March 2.
The company also noted it has appointed Peterhouse Capital Ltd as broker with immediate effect.
By Anna Farley; annafarley@alliancenews.com
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