The share price of AIM-listed alternative business structure Quindell plc tumbled 20% yesterday as the company sought to reassure investors over the details of three directors’ dealings in the shares.
The shares closed yesterday at 95p, having been as low as 89p during the day. The shares have been on a downward spiral since April; just four months ago Quindell was trading at 240p.
The source of the latest problem was the announcement last week that Quindell chairman Rob Terry, finance director Laurence Moorse and non-executive director Steve Scott had entered into a finance arrangement that enabled them collectively to spend nearly £2m in buying shares in the company.
It was the latest bid to boost investor confidence in Quindell, which describes itself as the largest publicly listed law firm in the world, and initially the share price rallied.
However, concerns over the sale-and-purchase funding arrangement with US capital provider Equities First Holdings (EFH) – and what EFH can do with the shares it now has – led Quindell to issue a clarification yesterday morning.
It said: “As the legal and beneficial holder of the transferred shares, EFH may take any action it deems appropriate in relation to the transferred shares and is under no obligation to hold or retain the transferred shares though it has undertaken not to vote them.
“In addition, EFH has represented and warranted to the purchasing directors that it will not borrow ordinary shares for short-selling activities and that its broker/dealer or depository institutions will not engage in any short-selling activity with any shares transferred under the agreement and held on account by them.”
The statement also revealed that EFH is paying the directors 67% of share price at the time of the deal (about 123p), less a 3% arrangement fee. When the agreement matures in two years, the directors are contractually obliged, “and have informed the company that they fully intend”, to purchase the transferred shares or equivalent shares from EFH at a price equal to 69% of that purchase price.
If the shares continue to fall, however, the directors will at a certain trigger point by required to transfer further shares or cash to EFH.
Mr Terry emphasised the board’s belief that Quindell is currently being undervalued by the market.
He said: “In entering into the sale and repurchase agreements to provide finance, each of us purchasing directors relied upon assurances from EFH that, notwithstanding EFH’s legal rights, the custom and practice of EFH was that the shares transferred would not be disposed of outright, other than in a default event and will be held by their custodians throughout the term of the agreement, nor would they engage in short-selling activity…
“For clarity, purchasing shares at the current valuation has been the motivation for entering into the agreements. The agreements are purely to provide funding for a two year term and I and Laurence intend to use the funds received under the agreement to purchase Quindell shares and to cover any associated potential tax liabilities and margin calls relating to the agreements, with Steve Scott intending to do the same and also cover certain other tax liabilities.”
Separately Quindell announced yesterday that Mr Terry had bought another 250,000 shares outright at 102p, and group chief executive Robert Fielding 22,837 shares at 109p. Mr Fielding said: “This further purchase of shares demonstrates my confidence in the company meeting full-year market expectations and its longer-term prospects.”