Mi-Pay Group PLC (LON:MPAY) Proposed disposal and cancellation

With an opening SP today on the London markets 2.39, a previous close of 2.00 it was just another a normal business day. The share price would hit a morning high of around 4.50 at 11.25 am (GMT).

Everything was about to change and at precisely 3 pm the following RNS below was released,  with a 52wk low of 1.11 being hit. This from a company that had a 52wk high of 13.00.

Proposed disposal of Mi-Pay Limited, cancellation from AIM and MVL

Mi-Pay (AIM: MPAY) announces the proposed disposal of its wholly owned trading subsidiary, Mi-Pay Limited, to Alphacomm B.V. (“Alphacomm”) for cash consideration of approximately £792,000 (the “Disposal”). On completion of the Disposal, Alphacomm has undertaken to ensure that Mi-Pay Limited is sufficiently capitalised so as to repay inter-company payables which it owes to the Company of approximately £308,000, meaning there will be a total aggregate receipt by the Company of £1.1 million. The Company also announces the proposal to cancel the admission of its ordinary shares (“Ordinary Shares”) to trading on AIM and intention to return capital to shareholders of the Company (“Shareholders”) via a members’ voluntary liquidation.

Background to and reasons for the Disposal

The Company’s Ordinary Shares were admitted to trading on AIM on 29 April 2014. The Company’s operations are focussed on the provision of digital transformation, mobile payment and payment fraud management services to Tier 1 Mobile Network Operators, Mobile Virtual Network Operators and digital content providers.

On 22 November 2019, the Company announced that it was yet to receive a research and development (“R&D”) tax credit of approximately £0.3 million from HMRC.

The Company further announced that it was in discussions with existing and new investors regarding a potential equity fundraise, in order to provide the Company with working capital should the receipt of the R&D tax credit be materially delayed beyond Q1 2020, reduced or not received at all. Following the completion of these discussions, it has not been possible to conclude a fundraise with existing shareholders or other parties on terms which are deemed to be acceptable by the Board.

In recent years, the Company has demonstrated an ability to deliver solutions efficiently and drive improved margins from its revenues, seeing continual natural growth within its existing clients. It successfully renewed and extended two major client contracts in early 2019, representing 43 per cent. of the Company’s 2018 revenue, and delivered growth and increasing profitability from its direct managed fraud service. However, in September 2019, one of the Company’s larger clients, contributing 13 per cent. of the Company’s revenue in 2018, consolidated their payment transactions to another existing provider as they downsized their own operation. Whilst the Company has taken mitigating actions from a cost perspective, when combined with the uncertainties in the market due to the new and delayed implementation of Payment Services Directive (PSD2) and economic uncertainties, growth has been slower than anticipated, as announced by the Company in August 2019.

The risk associated with the R&D credit has compounded the impact of the above factors, and the Board has taken further action to align the Group’s cost base appropriately. It is also anticipated that the fraud screening services provided to Alphacomm, which are expected to deliver approximately £0.4 million of revenue in 2019, may be at risk in the future should the Company not proceed with the Disposal.

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Over the recent years, the Board has actively considered M&A opportunities for the Company, none of which have come to fruition. These have included the potential sale of the business, as well as seeking appropriate acquisition opportunities to accelerate growth. This has included previous discussions with Alphacomm.

Taking the above into consideration, it is therefore the view of Seamus Keating and Edward Lascelles who, for the reasons set out below are deemed to be the independent directors of the Company in respect of the Disposal (the “Independent Directors”), that, given the M&A and fundraising options explored by the Board to date, proceeding with the Disposal is the best option available to the Company in order to maximise Shareholder value. Further, given the synergies with Alphacomm, it will provide a stronger and wider geographical growth platform for Mi-Pay Limited, provide a materially increased scale, and secure the long-term continued investment in its employees, clients and solutions.

For the year ended 31 December 2018, Mi-Pay Limited recorded audited loss before tax of £538,486 on revenues of £3,337,025. The audited total assets of Mi-Pay Limited as at 31 December 2018 were £5,022,336, with net assets being £375,653.

Terms of the Disposal

The Company and Alphacomm have today entered into a conditional sale and purchase agreement for the sale of Mi-Pay Limited to Alphacomm for cash consideration of approximately £792,000 together with an undertaking from Alphacomm to fund Mi-Pay Limited to enable it to repay inter-company payables owing to the Company of approximately £308,000, such total amount of £1.1 million being payable in cash on completion of the Disposal.

Alphacomm has indicated that it may seek the continued services of John Beale and Michael Dickerson to continue to run the business of Mi-Pay Limited following completion of the Disposal, however no discussions have taken place. In light of this indication, John Beale and Michael Dickerson are not considered as Independent Directors for the purposes of the Disposal.

AIM Rule 15 and cancellation from trading on AIM

In accordance with Rule 15 of the AIM Rules for Companies, the Disposal will constitute a fundamental change of business for the Company and will therefore require the approval of Shareholders at a duly convened general meeting. Accordingly, the Company will in due course publish a circular to Shareholders (the “Circular”) to convene a general meeting to approve the Disposal and the cancellation from trading on AIM (the “Cancellation”). The Circular will include the timetable for the general meeting, Disposal, Cancellation and proposed liquidation (as detailed further below). It will set out the reasons why the Independent Directors consider the Disposal to be in the best interests of Shareholders and why all Directors intend to vote in favour of the resolutions at the general meeting. A further announcement will be made on publication of the Circular. The completion of the Disposal is conditional on the passing of the resolution regarding the Disposal, at the general meeting. The resolution regarding the Disposal will be proposed as an ordinary resolution. The level of Shareholder approval that is required is for more than 50 per cent. of the votes cast at the general meeting to be cast in favour of the Disposal. The Company will also be seeking that its Ordinary Shares be cancelled from trading on AIM. Under the AIM Rules for Companies, the Cancellation must be approved by not less than 75 per cent. of the votes cast at the general meeting.

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Members’ voluntary liquidation

Following the completion of the Disposal, the Company will no longer have any trading operations and the Board will seek to determine the best method to return the net cash resources of the Company resulting from the Disposal to Shareholders. To facilitate any such distribution of cash to Shareholders, conditional on completion of the Disposal, the Directors of the Company propose to seek approval to wind up the Company voluntarily by way of members’ voluntary liquidation (“MVL”) and to appoint a liquidator. Under the Insolvency Act, winding up the Company voluntarily by way of MVL must be approved by not less than 75 per cent. of the votes cast at a general meeting and appointing a liquidator must be approved by more than 50 per cent. of the votes cast at a general meeting. The Company will commence the MVL process following completion of the Cancellation.

On the basis of the assumption that: (i) the total cash receipt from the Disposal is £1.1 million; (ii) the liabilities of the Company remain at approximately £260,000; and (iii) the transaction costs of the Disposal and running costs of the Company in the period prior to completion of the return of capital amount to approximately £140,000, the Company is expected to have sufficient cash resources to make total distributions to Shareholders of approximately £700,000 in aggregate, equivalent to approximately 1.5 pence per Ordinary Share. The estimated level of total distributions is provided for guidance purposes only. It is emphasised that the ability of the Company to make the estimated level of distributions and the timing of such return is not currently known with certainty, and will be subject to factors outside of the Board’s control.

Further details on the proposed MVL process will be provided on posting of the Circular.

Related party transaction

As Alphacomm is controlled by Huub Sparnaay, a Non-Executive Director of the Company, the Disposal constitutes a related party transaction pursuant to the AIM Rules. The Independent Directors of the Company, having consulted with the Company’s nominated adviser, Allenby Capital Limited, consider the terms of the Disposal to be fair and reasonable insofar as the Company’s Shareholders are concerned.


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