Allco's hour of need

Turbulent markets produce the odd peculiar moment. The purported offer by Regent Street Instalments for Allco Equity Partners is one of them.

The self-proclaimed "shareholder activist” says it is going to offer $2.70 a share for AEP. With AEP trading around $2.30 a share, a cash bid at that level couldn't normally be dismissed out of hand against such a volatile backdrop for the market and the Allco group in particular.

Regent Street isn't, however, proposing a cash bid. It proposes to pay for the shares using 90-day commercial bills of exchange, "drawn in favour of accepting AEP shareholders and accepted by Regent Street.” Bills of exchange are a non-interest-bearing piece of paper under which the issuer commits to paying a specific amount on a specific date.

It goes almost without saying that the bills are only as good as the creditworthiness of the issuer. Regent Street would need to line up as much as $260 million to pay for shares that accepted the offer.

There is, however, another twist. Regent Street proposes to fund its offer, which apparently will have a 50 per cent minimum acceptance condition, through a shareholder-mandated return of capital, in turn funded by the sale of AEP's more liquid assets, with a market value of about $3 a share. So, it proposes to use AEP's assets to fund the takeover of AEP.

At last glance AEP had net assets of $5.53 a share. It would be a great deal –akin to daylight robbery – if Regent Street could pull it off. If AEP shareholders were remotely interested, of course, they could liquidate their company themselves and probably get at least $2 a share more.

According to Australian Securities and Investments Commission records, Regent Street was registered on January 7 this year. Of its 1,000,350 $1 shares, 1,000,100 were beneficially owned by a Stephen Lewis Matthews of Pymble in NSW, while the remaining 250 were held by a company with the same address.

There is a Stephen Lewis Matthews who has had a number of run-ins with ASIC in the past and who was found to be in contempt of court for breaching orders prohibiting him from posting information about securities on a web-site called The Chimes. That Matthews has served three months in jail for earlier postings of securities reports without a license. ASIC has also sought and been granted orders in the past preventing him from dealing in securities.

No doubt ASIC will be very keen to discover whether Regent Street's Stephen Lewis Matthews and The Chimes' Stephen Lewis Matthews are one and the same.