Paperlinx exploring share swap

Paperlinx Ltd may try to simplify its company structure in November through a share swap that will result in the company’s ordinary equity increasing to about $80 million.

The paper merchant company’s hybrid security holders will have to agree to such a deal while existing shareholders have to be convinced this deal will help sort out Paperlinx’s messy capital structure. The terms and conditions of the share swap are still being formulated.

By issuing holders of the hybrids ordinary shares in the company, Paperlinx hopes to deliver a clear capital structure so it can engage in normal corporate transactions giving confidence to customers, suppliers and lenders. The loss-making company wants to accelerate an operational turnaround by adding packaging and signage businesses.

The company, which had a statutory loss of $90.2 million in the 12 months to June 30 this year, has sold assets including its properties, fired employees and restructured its loss-making European businesses as its bankers demanded Paperlinx deleverage. Paperlinx’s net debt as of June 30 was $122.7 million, down from $138.6 million at June 30 last year.

Attempts by Paperlinx to clear up its messy capital structure by issuing new shares and canceling the hybrids may be stopped by a group of hybrid securities holders including US hedge fund Coastal Capital and an investor group that calls themselves Pigs (PXUPA Investor Group Supporters).

Coastal holds 12 per cent of the hybrids. Pigs’ convener, Graham Critchley, says his group is one of the biggest holders, representing somewhere between a quarter and half of the hybrids. Institutional holdings make up some 24.5 per cent not spoken for by Pigs, he says. 

Hybrid holders are entitled to dividends ahead of ordinary shareholders and they will need to consent to the terms of any share swap. Paperlinx and its advisors at Moelis & Co have been meeting with hybrid holders to try and get their consent.

Paperlinx issued $285 million of hybrid securities when its market value was about $1.7 billion. The value of the hybrids is now between $30 million and $40 million. Paperlinx’s market value is $34.7 million.

“Let’s see what’s offered,” Critchley told DataRoom, though he views previous offers by the company to its hybrid holders as “pure rubbish” without explanation.  

Paperlinx is hopeful a deal can be reached.