A vote that will hand control of Mouchel to the banks and avoid insolvency action is the “right thing to do” for shareholders, according to chief executive Grant Rumbles.
Mouchel today announced plans for an £87 million debt for equity swap with lenders RBS, Lloyds Banking Group and Barclays, which would give them a majority stake in the firm. It will mean Mouchel delisting from the Stock Exchange.
If shareholders – who will receive just 1 penny in a special dividend – do not approve the deal on 24 August, then lenders’ support would be “limited to supporting the directors’ decision to appoint an insolvency practitioner with a view to effecting a sale of the group through an insolvency process”, the company said.
A sale “either to a third party or parties or to a lender-owned vehicle” would be the “most effective way of mitigating any further loss to the company’s creditors”, it added.
Mouchel is dependent upon the support of its lenders and a default is expected under the terms of its existing borrowings on 30 August 2012.
CEO Grant Rumbles told CN that in six months of negotiations - including advice from Goldman Sachs - there was no other deal that would give shareholders more value.
“This means that our shareholders are able to get some value for every share; they get 1 penny, which is some value at least, rather than nothing,” he said.
“This does secure the future for the business and I would be very surprised if they do not vote in favour of this – it’s the right thing to do,” he said.
Shares at the firm sank 50 per cent to 1.05p today. Mouchel shares traded at more than 150p last year
Asked whether a 1 penny per share dividend is a fair reward for shareholders loyalty over the last two years, he added: “This is not about loyalty, it’s about finding solutions that are right for Mouchel. This is the right decision for the business.”
Mr Rumbles stressed that if the shareholders did not vote in favour of the move, the company would still end up in the hands of the banks.
The CEO - who joined the firm last autumn - said he is delighted they have managed to “secure the futures” of 8,000 staff.
The debt for equity deal will see Mr Rumbles, chairman David Shearer and finance director Rod Harris stay in position. Existing directors Sir Michael Lyons and Richard Rae would leave the board, with the banks putting two new non executive directors in place.
Mr Rumbles said the banks “don’t want to have control of the board”, but “want it to be run independently”. He said the incentive for the banks is that they will have a private equity stake and retrieve the £87m debt and more from the company.
He also stressed there are no plans to do any more restructuring within the group, which was reorganised into two divisions after Mr Rumbles took over.
Mr Rumbles added that financial strength is central to winning large projects, after the company said its over-leveraged balance sheet is restricting it from competing effectively and winning new business.
He said the debt for equity deal is a “very good news story” for the company.
He told CN: “We are delighted that we have managed to secure the futures of over 8,000 people and for us this is a really good result.”
Changes to the company since the autumn have included a new CEO and finance director, the sale of the rail and pipeline design businesses, restructuring the business into two divisions, re-sizing the Middle East and management consultancy and implementing a weekly cash forecast and review process.