Two director of West Perth-based Webspy have urged shareholders to vote against a $4.8 million acquisition of the Marketboomer group of companies, saying it is effectively a reverse takeover and did not add any value.
Two director of West Perth-based Webspy have urged shareholders to vote against a $4.8 million acquisition of the Marketboomer group of companies, saying it is effectively a reverse takeover and did not add any value.
Non-executive directors John Chua and Francis Galbally wrote to shareholders today, urging them to vote against the transaction at a meeting scheduled for November 16.
Last month, Webspy announced it had signed an agreement to acquire Marketboomer, an internet-based procurement and materials management business, in an all-scrip deal.
The group provides its clients, predominately in the hospitality and food services businesses, with an internet-based solution to trading more effectively with suppliers.
Webspy has previously said the acquisition will be a natural fit with both entities' products that are B2B and based around internet and large data manipulation with high transaction levels.
Messrs Chua and Galbally today said the transaction is effectively a reverse takeover of Webspy without an adequate premium and will not add value to Webspy's business.
Under the transaction, Webspy will issue 115 million ordinary shares, and following a further issue of 361.5 million shares, Marketboomer will hold an 80 per cent interest in Webspy's issued capital.
Messrs Chua and Galbally also said the acquisition did not fall within the board's investment parameters and that the independent expert's report is inadequate.
The directors added that it had been informed by 13.67 per cent shareholder Kim Hin (Malaysia) Sdn Bhd of its intention to vote against the transaction.
Shares in Webspy closed up 0.3 cents, or 11.5 per cent, to 2.9c today.
The announcement is below:
Dear Shareholder
General Meeting
We are writing to you regarding the General Meeting of Webspy shareholders scheduled for 16
November 2009.
As detailed in the Notice of Meeting, Webspy is proposing to acquire the Marketboomer business.
But the Notice does not, in our view, make it clear that this transaction is really a reverse takeover of your company.
We urge you to vote AGAINST this transaction.
This letter sets out our reasons for opposing the transaction. We note that the views expressed in this letter are of two Webspy directors and are not representative of the views of the other three
Webspy directors. Accordingly, you will appreciate that our views do not reflect those of the entire Webspy Board.
In our view, the proposed transaction is NOT in the best interest of Webspy shareholders as:
- the transaction is effectively a reverse takeover of Webspy without an adequate takeover premium;
- the acquisition of Marketboomer will NOT add value to Webspy's business;
- Marketboomer does NOT fall within the Board's investment parameters; and
- the independent expert's report is inadequate.
We note that Webspy has been informed that a substantial shareholder, Kim Hin (Malaysia) Sdn
Bhd (holding 13.67%), intends to vote AGAINST this transaction.
Our reasons are discussed in further detail below.
1. In our view the proposed acquisition is a reverse takeover of Webspy without an adequate takeover premium
Webspy intends to issue 115,000,000 fully paid ordinary shares, and 361,565,100 deferred shares to Marketboomer shareholders. Following the issue of the deferred shares,
Marketboomer shareholders (in aggregate) will hold 80% of Webspy's issued capital and
the interests of current Webspy shareholders will be reduced to 20%. So together,
Marketboomer shareholders will effectively CONTROL YOUR COMPANY.
In fact, in our view effective control of Webspy will pass to Marketboomer shareholders
upon completion of the transaction. Marketboomer shareholders (in aggregate) will at that
time own 49.11% of Webspy. The next largest shareholder will have just over 6% of the
shares of Webspy.
There is a risk that Marketboomer will not achieve its target revenues. If even
Marketboomer's shareholders do not receive the deferred shares as a result of
Marketboomer not achieving its targets, they will nevertheless already have effective
control of Webspy.
In our view, the transaction does not provide Webspy shareholders with an adeqaute
takeover premium. We think the value of the consideration offered to Marketboomer
shareholders is higher than the value of the business being acquired by Webspy.
Therefore, we cannot support the significant dilution of our current shareholders' interests.
2. In our view the acquisition of Marketboomer will NOT add value to Webspy's
business
In our view, Marketboomer's recent financial performance is unsatisfactory and we think
that Marketboomer does not have sufficient internal cash flows to support its business
plans. Additionally, Marketboomer owes $997,000 to an entity related to one of its
shareholders. Upon completion of this transaction, Webspy will effectively inherit this debt.
We believe that the consideration offered to Marketboomer shareholders is too high given
the risk associated with acquiring Marketboomer. Also, in our view, Webspy has not
provided satisfactory information which justifies acquiring a business in its financial
position.
According to our analysis, Marketboomer does not generate sufficient profits to meet its
growth projections and target revenues. Therefore, we are concerned that Marketboomer
may undertake a capital raising through Webspy to assist them in achieving these targets
and thereby ensure that the Marketboomer shareholders will receive the subsequent issue
of deferred shares. A capital raising of this nature would further dilute the interests of
current Webspy shareholders so that they may own even LESS than 20% of Webspy
shares.
3. In our opinion Marketboomer does NOT fall within the Board's investment
parameters
While we support the acquisition of an appropriate business which will complement and
add value to the Webspy business, we think that the Marketboomer transaction is
unsuitable. Earlier this year, your Board agreed to adopt certain parameters when
assessing investment opportunities, including minimal debt level, satisfactory cash flow
position and transparent remuneration packages for key managers. We think these
parameters are not met by this transaction. For example, as mentioned above,
Marketboomer owes $997,000 to an entity related to one of its shareholders. In our view,
the Marketboomer business does NOT fall within the investment parameters set by your
Board.
Further, the Explanatory Memorandum states that certain synergies exist between
Marketboomer and Webspy. We do not agree. The alleged potential synergies seem to
be based on the fact that both businesses are part of the software industry. This is not a
satisfactory basis. In our view, there are few similarities between the products of the two
businesses and, accordingly, there is little value to be gained through possible synergies.
We note, however, that the other three Webspy directors do not agree with our views.
4. We consider that the Independent Expert's Report is inadequate
The Explanatory Memorandum states that the acquisition of Marketboomer has the
potential to substantially increase the revenue of Webspy. We have not been provided
with sufficient information to support these claims. In fact, no proper Webspy business
plan was provided to the Independent Expert to assist in preparing its report nor has one
been provided to the Webspy Board.
Also, we consider that the Independent Expert's Report contained in the Explanatory
Memorandum is inadequate as it does not address key disadvantages which have been
highlighted in this letter. In our view, it does not satisfactorily highlight the passing of
control to Marketboomer shareholders upon completion of the transaction and the effect of
this for Webspy shareholders. Nor does it assess whether any takeover premium is being
provided to Webspy shareholders despite stating that this was considered when
formulating the expert's report.
Ultimately, we consider that the proposed acquisition will NOT add sufficient value for Webspy
shareholders. Instead, we believe that the preferred approach is for Webspy to maintain its current
business strategy, which has implemented significant cost cutting. Webspy should have new
leadership and search for an appropriate acquisition which provides better value for shareholders.
The Chairman of the Meeting intends to vote in favour of all the resolutions in relation to any
undirected proxies. Should you be unable to attend the General Meeting, we strongly urge you to
participate by completing and returning a proxy form in favour of Mr John Chua who intends to vote
AGAINST all the resolutions.
We look forward to seeing you at the General Meeting.
