This morning Management Resource Solutions (LSE:MRS) released its long awaited legal review of the Alerion transaction. Quite what the board hoped to achieve with this report is anyone’s guess. The findings were entirely predictable and failed to address the two major concerns of shareholders; did MRS overpay for Alerion and does an undeclared concert party exist, which controls the company?
We’ve covered the controversy over MRS’ acquisition of Alerion a number of times in recent months. MRS bought the start-up in March for £1.32m, which it paid for in stock. At the time Alerion had only existed for 8 months, had tangible assets of only £47,650 and had made a pre-tax loss of £88,800.
Shareholders were furious at the transaction, launched an action group and called a general meeting to remove the board. This was defeated in May, but the voting record and other disclosures concerning the company raised questions whether or not an undisclosed concert party existed, which had conspired to defeat MRS’ minority owners?
If this were the case, then it seems like that under Rule 9 of the Takeover Code tis concert party would be required to make a bid for the company.
This matter has been reported to the Takeover Panel, the responsible authority, but so far no public action has been taken. Whether or not any action is taken remains to be seen, but this morning’s announcement by MRS is going to have done little to soothe shareholder anger.
MRS engaged the firm of solicitors Memery Crystal LLP to prepare today’s report. In its carefully worded RNS, Memery Crystal made sure to caveat its findings clearly. Although Memery Crystal found “no evidence that the acquisition was a sham transaction”, it also pointed out that it had not been engaged to give any opinion on the £1.32m valuation of Alerion nor the commercial rationale for entering into the deal. This job has been left to Leadenhall Services, which will produce a separate “independent valuation report” later this month.
Of course, use of the word “independent” in these circumstances isn’t really credible, but we now have to wait to see what Leadenhall comes up with in its commercial assessment of this case.
With respect to the concert party issue Memery Crystal’s position was ambiguous. In its statement it said only the Takeover Panel “can rule upon the question as to whether a concert party exists”. While this is technically accurate, what is interesting is that Memery Crystal did not deny such a concert party exists in its view. After all, solicitors are employed to give opinion not (and this is crucial) make a ruling.
Were Memery Crystal able to offer an opinion that it had found no evidence of the existence of a concert party then it stands to reason it would have said so in the report.
With another general meeting called, again to seek removal of the board, gaining full clarity on whether an undeclared concert party exists at the company is a matter of the utmost importance for MRS’ minority shareholders.