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Misplaced support for Magnolia Petroleum costs shareholders everything (MAGP)

Last summer, Nostra Terra Oil & Gas (LSE:NTOG) launched an unsuccessful attempt to save Magnolia Petroleum (LSE:MAGP) from its grasping board of directors. Nostra’s attempt to rescue the company was scuppered when Magnolia’s CEO, Rita Whittington, gave away nearly 30% of the business to Western Energy Development (WED). The deal made absolutely no sense financially and the only reason for Whittington’s largesse was so that she could save her skin to continue fleecing the company. What was utterly baffling about this was that Magnolia’s shareholders supported her in this. Today they must be bitterly regretting that decision, as they stare down the barrel of a total wipeout.

This morning Magnolia announced the inevitable. The company is going to delist from AIM.

No amount of turd polishing can alter this fact. The company is finished.

While the company is going to go through the motions of holding a general meeting to confirm this, the outcome is guaranteed. With WED holding such a large stake in the business it seems inconceivable the resolutions will be voted down. Even if they, all this will mean is that Magnolia achieves the near impossible, which is to go bankrupt while listed on AIM.

Magnolia’s business model failed long ago. The company had been in breach of its banking covenants for the best part of two years, the auditors warned what was coming in the last going concern statement and the company’s share price ground ever lower, even after last October’s 100:1 capital re-org.

The writing was so clearly on the wall, it is almost inexplicable that Magnolia was able to raise £300,000 via Cornhill Capital last December.

But I suppose that is part of the joy of AIM.

Most shit still floats.

However, back to last summer’s cries of “in Rita we trust!” from Magnolia’s shareholders.

If you really believe someone is going to deliver, then it is right to throw your full support behind them. Supporting Matt Lofgran over recent years hasn’t exactly been the easy option, but look at what he has delivered in turning Nostra around.

For Whittington and Magnolia on the other hand, what is most galling is the total disrespect she and the company have shown to their long-suffering owners. Having rallied their support to save her job, she promptly dropped them, dumped on them the 100-1 consolidation and then ignored them.

All the while she pocketed obscene amounts in remuneration.

Directors like Whittington bring shame to AIM. These self-interested, value destroyers are a blight on British pension schemes and the sooner more of them are shown the door the better.

First, though, shareholders have to learn to wake up and recognise when they are being bullshitted.

Last summer, had Magnolia’s shareholders rallied to the support of Lofgran I am fairly certain the outcome would have been much better for them. They would have been able to apply enough pressure on the company to stop the WED travesty (sorry I mean “deal”), give Whittington the well-deserved boot and have salvaged some value. People power does count on AIM, if martialled properly.

But they didn’t and now are paying the price. Perhaps I should be more sympathetic, but the hard truth is that if we want a better market we have to work for it. Taking the easy option of sticking with the devils you know, such as Whittington, can only ever end one way.

Total financial loss.

 

 

Author

Ben Turney

Disclosure

The author would be seen dead owning garbage like Magnolia Petroleum

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