Shares in Link Administration lost 20% yesterday, all but killing off the convoluted, long running $2.5 billion takeover offer from Canadian group, Dye and Durham (D&D).
If the bid is to survive, it will require the Canadian company to make a big decision that there are no more problems in Link’s involvement in the collapse of the investment fund run by high profile UK manager, Neil Woodford.
Unfortunately there is another potential problem and that is a class action from aggrieved investors in the fund whose case was bolstered by the surprise news from Britain’s Financial Conduct Authority on Monday.
That case had always been a concerned to investors in Link – the collapse of the Woodford fund and Link’s key role in the final days of the fund’s public life never featured heavily in discussions and yet they should have been because the two are inextricably linked.
Link’s share price tumbled to a day’s low of $3.50 – down more than 22%. They ended at $3.58, down 20% and a long, long way from the $4.81 offer price from D&D and its $2.5 billion value on Link.
That is now $2 billion at best if D&D wants to proceed, and they can if they want to because the UK regulator says the bid can go ahead if there is enough money in the key Link UK subsidiary involved in the Woodford fund administration, to meet the suggested penalty of up to £306 million (around $A518 million)
The UK financial regulator has been investigating the demise of the former star stockpicker’s flagship fund. Link, which was the fund’s administrator, froze the fund in June 2019, trapping £3.7bn of investors’ funds.”
“The FCA has investigated the circumstances leading to the suspension of the [Woodford Fund] and is likely to seek to require [Link] to pay a financial penalty and/or consumer redress,” the regulator said in its statement late on Monday, adding that it may require Link to pay up to £306 million.”
“The proposed takeover involves the acquisition of seven firms authorised by the FCA. D&D is required to seek FCA approval to take control of these firms. One of these is Link Fund Solutions Ltd (LFS), which managed the LF Woodford Equity Income Fund (WEIF).
“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.
“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. The FCA understands that investors will be keen to understand the impact that this may have on them, including any potential to receive redress, and will provide an update as soon as it is able to do 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. That will come from lowering the offer price to around $A2 billion or less – but given that the investigation’s eventual outcome remains unknown, the eventual cost could be open ended and that is likely to kill the offer.
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.
“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. Link Group will update the market as appropriate.”
So the future of link is now in the hands of its Canadian suitor. Remember it originally offered $5.50 a share for Link in late 2021, cut that to $4.30, lifted it to $4.57 and then $4.81 with the inclusion of a 13-cent per share payment.
Only last week, D&D’s bid won the approval of competition regulator the ACCC by agreeing to sell its existing businesses in Australia to lessen any impact on local competition in property settlements and conveyancing because Link owns 42.77% of PEXA, a listed company that operates an electronic lodgement network for digital conveyancing settlements. Both Link and Dye & Durham also operate in conveyancing via their exposure to data management and analytics.
The Canadian company will now have to decide whether it is worth selling what it has got in Australia and going for Link, with the UK problems in terms of a possible huge penalty and the untested class action over the same situation, or dropping the bid and staying with what it has until Link’s situation is finally sorted