Link Administration Holdings Limited
(ASX:LNK) has given itself and its would-be Canadian buyer Dye and Durham an extra eight days to try and find a solution to the sudden appearance of a half a billion dollar obstacle to their $2.5 billion marriage.
That offer is dead and so is the offer price of $4.81 – Link shares ended at $A3.53 yesterday, down a further 1.4% on top of Tuesday’s 20% slump.
That gave a market value of around $1.8 billion – around $700 million less than the Dye and Durham offer.
In a notice to the ASX on Wednesday, Link said it had applied to and been granted orders to adjourn the second scheme of arrangement hearing in the NSW Supreme Court due for September 15, to September 23.
But while that has bought it time, analysts wonder why Link has no provisions at all in its own accounts for any potential fines stemming from its British subsidiary Link Fund Solutions being involved in the administration of the failed investment fund managed by one time star fundie Neil Woodford.
Despite claims from Link that the situation is confined to the UK subsidiary involved – Link Fund Solutions, – no one seems to believe that.
The UK regulator, the Financial Conduct Authority (FCA), has approved the Dye and Durham offer for Link so long as there is enough money in the UK company Link Fund Solutions.
“The FCA has therefore decided to approve D&D’s acquisition of LFS, subject to a condition to commit to make funds available to meet any shortfall within LFS in the amount available to cover any redress payments LFS may be required to make,” The FCA said earlier this week.
“This is the only condition the FCA has decided to impose to allow D&D to take control of the seven UK-authorised firms. The FCA has approved a change in control for the other six UK-regulated entities owned by Link Group.
“Given the FCA’s enforcement case with LFS is ongoing, the FCA is not currently able to provide any further information.
So in effect, if Link and Dye and Durham want to complete the deal it will cost a further half a billion dollars or more, one way or another.
In a statement to the ASX on Tuesday, Link said its UK company, LFSL (Link Fund Solutions Ltd) “will explore all options, including challenging any Warning Notice that may be issued at the Regulatory Decisions Committee and further through the Upper Tribunal (part of the FCA’s appeal process), as LFSL does not agree with the FCA’s view.”
“Link Group remains supportive of LFSL considering all such options, and notes that LFSL continues to trade profitably with a leading position in its market. Link Group has not made any commitment to fund or financially support LFSL.
“Link Group considers that any liabilities relating to the Woodford Matters will be confined to LFSL,” Link asserted.
“If Dye & Durham does not accept the requirement, then a condition under the Scheme Implementation Deed may not be satisfied. Dye & Durham has not yet indicated its position in relation to the FCA’s requirement.
Dye & Durham said in the takeover scheme documents that it could walk away from the Link bid if the FCA imposed tough conditions.
It has and now Australian investors who underestimated the willingness of the UK watchdog to do so, may either end up on the losing end of a lower offer price or no offer price at all and a capital raising from Link to meet the FCA’s demands (if the regulator is successful in any appeal process).
The Financial Times pointed out that the UK company, Link Fund Solutions “had profits of only £7.2mn and net assets of just £30mn in the year to June 2021, according to Companies House.
“But if it failed financially, the FCA would surely ask Link Admin to cover any shortfall,” The FT wrote in its Lex commentary column.
And what would Link then do? Undoubtedly, that’s the key to the future of this very convoluted bid.
