ICash sunk in horror story, Korean style
Loved for its catchy tune and its unique dance moves, it became the first YouTube video to reach 1 billion views in December.
As the remarkable success of Gangnam Style was unfolding, Julia King and Chris Charlton were having a remarkable Korean experience of their own. They were hoping for a worldwide hit but they got a Korean horror story instead.
In August, King and Charlton had just gone on the board of ATM company iCash to oversee its exciting expansion in South Korea.
ICash had sold its fleet of Australian ATMs for $16 million, a business that delivered profits, and bought into NeoICP, a Seoul company with a promising non-bank cash payments system.
For King, a professional director and former chief executive of Louis Vuitton, and fellow director and accountant Charlton, NeoICP has proved to be the corporate hospital pass of the year.
Not only did iCash buy a lemon but they paid scrip for that lemon and, using its scrip, that lemon is now bidding to wrest control of iCash via a reverse takeover. The battle for board ascendancy will be put to a shareholder vote on July 22.
Worse, while iCash is bleeding cash and the vulture funds hungrily circle, King has fielded another requisition for board changes. This time, embedded among the Korean names on the ASX release was one Garry Bonaccorso.
Keen observers of Vanuatu tax structures may recall Bonaccorso, along with elusive businessman Phillip Grimaldi of Murchison Metals fame, were pursued by the Australian Federal Police. Their alleged tax scam was a "round robin" structure involving PKF Vanuatu, dozens of New Zealand bank accounts and accused money launderer Robert Agius.
Bonaccorso and his Korean associates are trying to have two directors, Daniel Altiok-Brown and Barry Sechos, removed from the board. But Sechos and Altiok-Brown - representing the hedge funds, Brian Sherman's Sherman Group and Octavium Capital - have only just turned up on the scene themselves.
Octavium invests in "unloved and underappreciated companies", of which iCash is clearly one. Since switching strategies and inviting the Koreans on board, iCash has gone from a net profit of $3 million and a share price of 45¢ to a loss of $12.7 million and a share price of 7¢.
Describing the One Company Transaction (the merger) as "shareholdercide", Octavium wrote to iCash in February urging it to abandon the plan.
NeoICP and its associates, Octavium wrote, would control 40 per cent of the stock, enough for control (iCash has 63 per cent of NeoICP). Already, iCash revenues had plunged 45 per cent and profit from the Korean NeoICP operation was down 189 per cent.
So, King and Charlton relented, gave the hedge funds two board seats for their 8.8 per cent of the stock and delayed the One Company Transaction.
It has been quite a year. ICash sold its 1000 ATMs last January to concentrate on Korea. In May 2012, the Koreans requisitioned the company for board representation. NeoICP's "Steave" Ham became iCash executive director.
NeoICP's revenue projections turned out to be "wildly optimistic", the iCash board told shareholders earlier this month. The statement also revealed that iCash's former chief executive, James Manny, had been on a $500,000 cash success fee for the One Company Transaction.
Under Korean law, if iCash could acquire 95 per cent of NeoICP it could move to compulsory acquisition.
According to iCash, Manny procured an "offer to issue 9.99 per cent of iCash's scrip to 14 "unassociated and unrelated" NeoICP shareholders (in advance of the shareholder meeting to approve the OCT) in return for their collective 9.6 per cent interest in NeoICP.
Alas, said iCash, "it has since emerged that many of the parties receiving iCash scrip had strong connections to NeoICP".
Amid the countdown to the shareholder meeting next month, the Koreans are up to 40 per cent and on the warpath to take control. Meanwhile, the company strategy is on hold and cash reserves are dwindling.
Frequently Asked Questions about this Article…
iCash bought into Seoul-based NeoICP as part of a push into non-bank cash payments, funded in part by issuing iCash scrip. NeoICP’s revenue projections proved “wildly optimistic,” its Korean operation’s profit collapsed and the acquisition has left iCash with a loss-making business that the article describes as a ‘lemon’. That scrip has also allowed NeoICP-connected parties to press for control of iCash.
Since shifting focus to Korea, iCash went from a net profit of about $3 million and a share price near 45¢ to a loss of $12.7 million and a share price around 7¢. Revenues fell about 45% and profit from the Korean NeoICP operation reportedly dropped 189%, according to the article.
The One Company Transaction (OCT) is the proposed merger/reverse-takeover arrangement involving NeoICP and iCash. Opponents including investor Octavium called it “shareholdercide,” warning it would give NeoICP and its associates substantial control (around 40% of iCash). The OCT has been delayed and is a central issue in the company’s governance battle.
Scrip is shares issued by a company instead of cash. iCash issued scrip to certain NeoICP shareholders as part of the deal. iCash later said many recipients had strong connections to NeoICP, and those scrip holdings have helped NeoICP-linked parties build a blocking stake and push for board control.
Hedge funds and activist investors named in the article include Octavium Capital and Brian Sherman’s Sherman Group. They and other Korean-aligned parties have sought board representation. The article also notes a requisition involving Garry Bonaccorso and mentions his past pursuit by the Australian Federal Police in relation to alleged Vanuatu tax arrangements (as reported).
The article says the battle for board ascendancy will be put to a shareholder vote on July 22. That vote is expected to determine which directors control the iCash board and could influence approval or delay of the OCT/reverse takeover plan.
According to the article, iCash is ‘bleeding cash,’ cash reserves are dwindling and the company’s strategy is effectively on hold while the board battle and takeover/reverse-takeover issues are unresolved. The company also sold its fleet of 1,000 Australian ATMs (for $16 million) to concentrate on Korea.
Investors should be mindful of takeover and reverse-takeover risk from NeoICP-linked parties, dilution and control changes from scrip issuance, poor operating results from the Korean business, continued cash burn and losses, board instability and activist interventions, and the outcome of the July 22 shareholder vote. These factors can materially affect share value and governance.
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