THE COUNCIL of the Stock Exchange (CSE) has rejected an application from Sharelink Financial Services (SFS) to issue up to 219,801,978 new shares to shareholders of White Knight Holdings (WKH) who have accepted a proposal for the purchase of all the company’s shares, the CSE announced yesterday.
The CSE effectively put an end to what independent shareholders said would lead to the swallowing up of WKH and its capital by the CSE-listed SFS.
The independent shareholders had appealed to the authorities to reject the merger proposal.
WKH was set up in November 1999, at a time when share prices were at their peak, by the main SFS shareholders, who sit on both boards.
By June 2000, WKH had raised £76 million from investors who were paying between 50 to 70 cents per share.
SFS used various methods to take a 42 per cent stake in the company, initially taking 26 per cent, which it paid with SFS shares worth £20 each at the time.
Bank loans were then used for the purchase of WKH shares, representing an additional 11.5 per cent of the capital.
Three WKH subsidiaries were used to provide collateral and guarantees for the loans amounting to £12.5 million.
SFS subsequently increased its holding with the takeover of Kyknos investment company, which also held WKH shares.
Small shareholders claim that for every pound they invested in WKH, SFS benefited by 30 to 35 cents, while the company’s cash reserves were used as an internal pocket for SFS.
At the same time, the companies that WKH bought to restructure and make profitable ended up incurring more losses than before.
The companies were run by SFS, which was charging WKH £2 million per year to provide management and administration services.
To make matters worse WKH found itself saddled with 30 million SFS shares, which had lost 95.5 per cent of their value.
This meant losses of £28 million for the ordinary WKH shareholders who, unlike SFS, had paid for their shares in cash.
These shareholders blame the SFS board for huge losses, with 30 per cent of WKH assets effectively wiped out due to bad management.
Last April, the boards of the two companies announced the merger proposal, whereby WKH shares would be traded for SFS shares, based on their respective internal value.
But the CSE council has now rejected the proposal, which stops SFS from taking control of 93 per cent of WKH and thus ownership of immovable property worth £40 million and a fleet of six ships leased for 12 years.
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