| Mon 19 Jul 2004, 10:39 | | Downfall of Global a cautionary tale of bright pro |
|
Downfall of Global a cautionary tale of bright prospects gone awry
--------------------------------------------------------------------------------
YET another of the companies listed in the boom of the late 1990s looks set to disappear down the tubes. It is Global Technology, launched in 1996, listed in 1998 and, as it now seems, departed this mortal coil in 2004. RIP.
It is a tragic tale. And, if it does anything, it underlines the follies which so often are the handmaiden of lending banks` illfounded efforts to get their money back. The Global story, certainly in the later years, is of a company with hugely bright prospects being sacrificed to satisfy short-term opportunism powered by panic.
In Sydney, Michael Milne, now the frontrunner in a company called Admerex previously Global Technology Australasia is perceptibly angry. Any suggestion that the South African parent has been poorly managed `is an understatement`, he says.
Admerex has launched an action to recover what Milne says is more than A1m from Global. The case is due to be heard in Australia in November. `If necessary,` he says, `we will pursue the directors and shareholders responsible.` Milne says he is `appalled by the failure of the JSE Securities Exchange SA to protect shareholders and by the failure of the board to notify an effective change of control`.
`In fact,` he says, `from what we can ascertain, Global Technology has been in quasi-liquidation for the best part of 18 months while the banks have been in charge.`
`No announcement has been made by anyone. It is clear the South African regulatory authorities are less than investigatory or interrogative,` he says.
Global was started up by Ray Leonard and others in 1996 as the successor to ProLogic. Its major business was selling and maintaining the Globus banking system developed by Swissbased and listed Temenos.
Globus is a fully-integrated banking system used by many of the world`s major banks. In SA, it is used by Standard, Nedbank and Absa.
Global held the franchise for Africa and Australasia hence the Australian subsidiary. Global also supplied resources to support Globus installations in central and eastern Europe and Pakistan. Global also secured a 15% stake in Temenos itself and, at one stage, the Temenos stake was worth substantially more than all of Global`s business put together, probably about R1bn a number never reflected in Global`s local share price.
So what went wrong? In the aftermath of the September 2001 terrorist attack on the US, banks everywhere went quiet. Temenos posted losses and the share price went into free-fall in Zurich. Global, which had to equity account the Temenos stake, took a R170m hit.
Global had borrowed from a number of banks, sums that at the time were easily supported by a strong balance sheet. After 9/11, it all went pear-shaped.
Commerzbank reported its first loss in more than 100 years. It held Global`s Temenos shares as collateral and the fall in the counter`s value triggered a repayment demand followed by the arbitrary sale of sufficient shares to redeem the loan.
At the same time, Global`s Zimbabwe business was unable to remit about R28m to its parent. Forex losses of about R12m did not help. The company ended the financial year posting a loss bigger than its revenue.
Auditor Deloitte, citing an emphasis of matter, qualified the 2002 accounts. With R80m of borrowings, that was when the trouble started.
A plan to raise R40m by selling discrete parts of the group, introducing R25m of new equity and asking the banks to convert R25m to preference shares failed to get off the ground. Instead, the bank consortium, with Standard in front, sent in its boot boys led by Les Matuson of CMS Holdings, a body holding itself out to offer company recovery services.
The contradiction here is that Matuson was, until recently, a liquidator hardly the kind of background that lends itself to corporate repair.
In the event, an entirely opposite plan was implemented. The balance of the Temenos shares about 5-million were sold at between Sf1,50Sf2,20. This raised about R70m.
Within six weeks of the forced sale, those Temenos shares were valued at R60m more. The Temenos share price is now at about Sf11.
With the crown jewel gone, Global was left with three marginal businesses. These are now apparently on the chopping block. When they are sold, there will be nothing left.
Brought on board as a director at the insistence of the banks, Matuson resigned on July 5, signalling the approaching end-ofthe road for Global.
We all know about the weighted average cost of capital and that debt has a place in most companies. It is not that debt is bad the great risk is how it is managed by the lender. Too often, banks are seized by panic at the wrong time.
The result on this occasion has been the wholesale destruction of a 15-year-old company.
It is impossible to price this kind of damage.
Leonard, meanwhile, is back in business with a company called Accara. He has taken on some Global liabilities including its Australian misfortune.
However, the business is profitable, and there is a healthy cash flow. The same applies to Admerex in Sydney.
As Milne comments: `We took a bankrupt company and made it profitable with a A50m market cap. It makes you ask just what was being done to the parent.` Indeed it does.
