A Bris as you know, is the circumcision for little Jewish boys, and connection is, well, the opposite of cutting. Thanks or not to its oxymoronic/self-defeating name, BrisConnections finds itself in weird times. They issued shares in July, which promptly went and tanked. By November, the shares were less than 10c, and at some point they were trading at 0.1c. Enter a bunch of net traders who thought, look, how low can it go beyond 1/10th of a cent? They're still building the damn road and it is underwritten.
Thus the theory would have it that the more you bought, a killing was there to be made. There was one catch: the trust units were issued with an obligation to pay $1.00 per unit this year and then another $1.00 next year. This meant that unit holders like Nick Bolton who bought 47million of the units were up for 95million or thereabouts in obligations over the next 18months.
Bolton had just become the company's biggest shareholder and, thanks to brokers at Westpac, armed himself with 47 million part-paid BrisConnections units worth 0.1¢ each, and picked up $94 million of associated liabilities.
Bolton choked back tears as he spoke. "I have no comment to make at this stage, but I will talk at a later date," he said, before telling us that he bought the shares in an on-market transaction, and had not spoken with anyone at BrisConnections.
For months, BrisConnections company secretary Tamira Herbst tried to contact Bolton about his shareholding and staggering $94 million debt.
Goldman Sachs JBWere was engaged by BrisConnections to try to find an institutional buyer for his stake.
Emails and letters were sent to Bolton. Phone calls were made. A couple of people even braved the rather downcast looking labrador Bolton had posted at his front door in St Kilda, in an effort to speak with him.
All to no avail — he ducked the calls and the messages.
"If you speak with him again, please tell him to get in touch," said BrisConnections' key PR adviser, Mark Gold, in November. Herbst put in the same request.
Even BrisConnections chairman Trevor Rowe was stunned when Bolton, now the self-proclaimed champion of the BrisConnections underdog, finally took his call last week.
"I did speak with that fellow late on Friday afternoon to endeavour to understand what he was proceeding to do," Rowe said. "I was surprised he took the call, given our past efforts to get through to him."
At last, the face of young Nick, in all his morning-haired glory, has been revealed, and he is starting to look very much like the Corey Worthington of the business world.
Instead of hosting a rowdy house party, Bolton has instead gatecrashed the BrisConnections boardroom by calling an extraordinary general meeting to try to have its trusts wound up.
Understandably, this move by Bolton brought chuckles and derision from all quarters of the business world. Anna Bligh's Queenslan Labor government has to build the damn thing. There are others like Nick Bolton who are trapped with these 'obligations'. It seems to me part of the problem is that BrisConnections floated trust units that had $2.00 liabilities attached, so no matter what the price of the units, it was going to be minus $2.00 of its value at any point in time until the obligations phase were paid up. So, in floating trusts at $1.00 per unit, saddled with -$2.00, they effectively put a minus $1.00 units on the market.
No wonder the value dropped like a brick the day they were issued and rightfully so. I'd immediately short something like that if I knew it was coming down the pike. I'm sure the financial engineer types who put together the trusts would argue my minus-1-dollar-value-issue by telling me what I haven't factored in, but basically if you go by ROI, like most penny-ante day-traders do, it just doesn't matter.It's a 1-2=-1 equation from the get go. So people can line up and say how stupid Nick Bolton and his ilk were in buying these units; it goes without saying the people who originally devised them were just as dumb.
Now, what happens from here is the interesting bit. It's clear the penny-ante day-traders left holding these units can't afford these payments. Nick Bolton's ploy to wind up the trusts will probably fail, but what happens if:
- These guys all unite, then
- They send in an activist as a board director to raise hell, and,
- They flat out fight it out in court to get out of paying?
BrisConnections could spend years in court trying to squeeze the 780 million out of people who simply "don't got them"; and these people still might declare bankruptcies to get out of paying. What would they do then? Is there a possible upside to any of this for BrisConnections or Macquarie?
You can see the headache. This is delicious. Here's some more from the SMH:
Bolton's move to wind-up the company was announced to the market this morning, after documents were lodged on Thursday, and have met with an angry response from the company's board.
BrisConnections chairman Trevor Rowe described the move to call a meeting to vote on winding up the trusts as ''a misguided and ineffective attempt to avoid its future obligations to BrisConnections''.
In order to have Brisconnections' trusts wound-up, Bolton will need 75% of the vote.
According to Rowe, unitholders will still be liable to pay the two further $1 instalments, even if Bolton is successful at the EGM.
''BrisConnections is very concerned that unit holders may misunderstand the impact of a winding up on the liability of unit holders,'' Rowe said.
''Winding up the trusts will not remove the obligation on unit holders to pay the outstanding amounts on their units including the next $1 instalment that will be called on 2 March, 2009. Regardless of the outcome of the meeting, unit holders will remain liable.
''Clearly, this proposal is not in the best interests of all unit holders and will be vigorously opposed by BrisConnections directors. In the event of the winding up proceeding BrisConnections would have no alternative but to cease trading which would leave unit holders in the position of still needing to contribute additional amounts into an entity which can never generate income.
''The consequences of winding up BrisConnections would result in complete destruction of future unit holder value,'' Mr Rowe stated.
Mr. Rowe would say that - it's in his interest. But if the unit-holders unite, they could make a LOT of trouble for Mr. Rowe. This is going to take a lot of delicate negotiating to get Nick Bolton and people who are in a similar position to get them out of their unit-holder position - in other words, buy them out of their fingertraps. Or they might try and bully them all the way, but something tells me that you can't bully people who have their backs to the wall. They fight like hell. So, uh, good luck with that BrisConnections. :)
Heck, I'm tempted to buy 500 units at a total of $0.50 myself to get ringside seats for $1000 - which I might not have to pay if Nick Bolton's side wins.
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