Wednesday 17th February 2010
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Independent directors of Cynotech Holdings found ‘limited appeal’ in chairman Allan Hawkins’ proposal to take the diversified company private, even though its NZX listing hasn’t provided much benefit.
Hawkins is offering preference shares in a shell company, Cynotech Securities Group, in exchange for the shares, preference shares and warrants in Cynotech Holdings. The offer puts the issue price at 13.5 cents per preference share in the private company. Interests associated Hawkins’ family currently own about 22% of the listed company, whose shares last traded at 6 cents for a market value of $7.6 million.
Cynotech Holdings’ directors committee said they weren’t able to make a recommendation to shareholders because the proposal because it isn’t a firm cash offer and depends on “an individual’s willingness to accept risk in their investment.”
While it provides an alternative avenue “for a potentially enhanced return in the future,” taking the company private would mean a loss of an open market and NZX disclosure requirements, they said in their report. Shareholders would also cede voting rights by accepting the preference shares.
“In the directors committee view, the offer has limited appeal, and there is no compelling reason to accept the offer, aside perhaps from the opportunity of a potentially enhanced return in the future, under the terms of the offer,” they said.
Hawkins wasn’t on the directors committee. Of the three other directors of the company, managing director Brett Tawse and Kevin McDonald have said they will accept Hawkins’ offer.
The company also released the independent advisers report, prepared by Campbell MacPherson, which valued the shares of Cynotech Holdings at between 7.3 cents and 10.03 cents, and concluded that the preference shares of Cynotech Securities should have the same value since it was “a recently formed shell company with start-up capital of about $200,000,” only enough to meet the costs of the offer.
In a separate report, the company announced a 45% slump in net profit to $1.26 million for the six months ended Dec. 31. Hawkins said he “does not believe the worst has been seen in the property and credit sector and this will continue to impact on the finance industry.”
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