The big squeeze

100:1 con­sol­i­da­tion a nec­es­sary pain

Finweek English Edition - - Companies & Markets - MARC HASEN­FUSS march@fin­

WHICH LISTED COM­PANY would will­ingly un­dergo a re­struc­tur­ing ex­er­cise al­most cer­tainly guar­an­teed to markedly shrink its mar­ket cap­i­tal­i­sa­tion? Ven­ture cap­i­tal in­vestor John Daniel Hold­ings (JDH) will soon face that very spec­tre when it un­der­goes a long-awaited 100:1 share con­sol­i­da­tion.

Ba­si­cally, JDH – which has traded on the JSE at a can’t-go-lower level of 1c for years – will con­sol­i­date 5,85bn is­sued shares into 58,5m shares. That’s part of a much needed re­cap­i­tal­i­sa­tion agree­ment with Golden Oak Cor­po­rate Ad­vi­sors, who have an op­tion to con­vert their R10m loan into 28,6m newly con­sol­i­dated shares at 35c/share.

Tech­ni­cally, on con­sol­i­da­tion JDH shares should trans­late into a mar­ket price of 100c, which would give the com­pany a rather gen­er­ous mar­ket cap­i­tal­i­sa­tion of R58,5m. JDH has held a R58,5m mar­ket cap­i­tal­i­sa­tion since re­verse list­ing into the old E-Data shell in 2001 – a value pegged by its 1c share price. How­ever, poor per­for­mances from its main op­er­at­ing sub­sidiaries – Lazaron (stem cell stor­age) and Vin­guard (a grape packaging spe­cial­ist) – mean the mar­ket may well mark the con­sol­i­dated shares down with some vigour.

The Golden Oak agree­ment sug­gests a price of 35c is the ex­pected level at which JDH’s con­sol­i­dated shares will set­tle. That would give it a mar­ket cap of around R27m (based on a weighted av­er­age of 78m shares in is­sue af­ter the Golden Oak set­tle­ment). That would rep­re­sent an enor­mous 65% drop in value for cur­rent JDH share­hold­ers – as­sum­ing, of course, the scep­ti­cal mar­ket is kind enough to ac­cord the share a 35c value. JDH’s tan­gi­ble net as­set value af­ter con­sol­i­da­tion should be around 13c/share if the max­i­mum num­ber of shares is is­sued to Golden Oak.

Con­sol­i­da­tion will be a hel­luva price to pay – es­pe­cially over the short term while Lazaron and Vin­guard re­build mar­kets lost dur­ing JDH’s cash squeeze pe­riod. But at least JDH share­hold­ers will get a more re­al­is­tic mar­ket pro­nounce­ment on the share’s value and, hope­fully, the abil­ity to trade out po­si­tions due to in­creased bid­ding op­por­tu­ni­ties for po­ten­tial buy­ers.

How­ever, un­der cur­rent mar­ket con­di­tions it may not be far fetched to see bid­ders aim­ing low at JDH. Surely we

won’t see 1c again?

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