SurfStitch Administration Update

SurfStitch Administration Update

We understand shareholders may have received further information in respect of a revised Cheadle proposed Deed of Company Arrangement (Enhanced Cheadle DOCA) this week, as reported in the Australian Financial Review article published on 28 March 2018, page 18.

Upon preliminary review of the Enhanced Cheadle DOCA, we maintain our recommendation that the EziBuy DOCA be preferred. In forming this view, we make the following comments:

  • The Enhanced Cheadle DOCA is ambiguous in many respects.
  • Cash Offer: The Enhanced Cheadle DOCA now matches the cash offer under the EziBuy DOCA of $3.4M to $4.3M, compared to the previous offer of $0.5M to $1.4M, withholding $2.45M for working capital. Group Member Claimants can take their cash as a dividend reinvestment or in cash at SurfStitch Australia’s The cash offer therefore may be more illusionary, than real.
  • Shares: Under the Enhanced Cheadle DOCA Group Member Claimants will be issued with 60% shares in SurfStitch Australia. Applying 60% shares to the administrators’ values calculates to an offer of $7.74M – $12.168M, which remains below the EziBuy DOCA of $6.018M to $19.955M.
  • The administrators’ report to creditors has EBITDA for SurfStitch Australia of between $1.99M to $2.29m. For SurfStitch Australia to achieve a value of $43M requires a multiple of 13 to 19, rather than the administrators’ view of 10 – 12. As SurfStitch Australia is now a sub scale business with limited working capital, we believe these new calculations to be unrealistic.
  • The Enhanced Cheadle DOCA appears to create value in SurfStitch Australia which does not exist, by comparing it to non-existent comparatives.
  • The Enhanced Cheadle DOCA proposes shares will be issued to General Member Claimants as soon as legally practicable, with the shareholder exit a possible IPO, trade sale or other liquidity event. The original proposal contemplated seeking retention of SurfStitch Australia’s listing, which now appears to be abandoned, meaning General Member Claimants will receive illiquid shares in a public unlisted company.
  • We remain confident in the expertise of EziBuy’s executives being most likely to achieve an IPO, given Alceon’s former achievements with EziBuy itself.
  • In a worst case scenario General Member Claimants will benefit from receiving a convertible note in the EziBuy/SurfStitch Australia merged entity, ranking them above shareholders, whereas under the Enhanced Cheadle Proposal, General Member Claimants, as shareholders in SurfStitch Australia would be last in line if SurfStitch Australia went into Liquidation.

The administrators remain favourably disposed to the EziBuy DOCA. The administrators circular to creditors dated 28 March in response to the Enhanced Cheadle DOCA can be viewed here, and a supplementary report to creditors will be accessible on its website on Thursday 29 March after 10:00 am. That report can be accessed at http://www.fticonsulting-asia.com/creditors/surfstitch-group-limited by inserting the password 457365.SGL

If not already submitted to our office, we recommend Group Member Claimants lodge their Proofs of Debt and Proxies immediately on the “LINK” portal, nominating Glenn McGowan QC and Damien Hodgkinson in the alternative before the administrators deadline of 2:00 pm Thursday 29 March. Please ensure copies are emailed to our office at vic-surf-stitch@gadens.com to complete records.

Please contact a member of our team should you have any queries.

Glenn McGowan QC

Partner & Chief Counsel

Rebecca Di Rago

Lawyer


This update does not constitute legal advice and should not be relied upon as such. It is intended only to provide a summary and general overview on matters of interest and it is not intended to be comprehensive. You should seek legal or other professional advice before acting or relying on any of the content.