The big squeeze
100:1 consolidation a necessary pain
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?