Paperlinx says hybrid buyout is a watershed moment

Paperlinx Ltd says its proposal to buy its hybrid securities and offer investors in the hybrids a majority equity stake in the company will underpin a restructuring that can restore confidence in the embattled paper merchant.

“It’s a watershed moment for the company if we are able to acquire the hybrid securities as it will allow Paperlinx to move on after a number of disastrous years,” Paperlinx managing director Andrew Price told DataRoom.

Paperlinx had a $90.2 million loss in the year to June 30 and a $266.7 million loss in the 12 months before that.

But Price and his board’s efforts to clear up Paperlinx’s messy capital structure has been stymied by five individual investors in the hybrid securities who oppose the takeover of their securities.

The five hybrid holders do not want Paperlinx to choose whether they get cash or stock in the company.

Collectively holding about 5 per cent of the securities, the five are seeking to change the constitution of the trust that governs the securities in December to enable them to decide whether they get cash or ordinary shares in Paperlinx.

By mid November, Paperlinx will publish a formal proposal of its plan to buy its hybrid securities. That will be followed by a statement that will include an independent expert report as to whether Paperlinx’s offer is fair and reasonable.

Paperlinx needs a 90 per cent acceptance approval of its acquisition plan for it to cancel the hybrids. On Friday, Paperlinx said it will offer 250 shares for each hybrid security.

“We have not received sufficient feedback from hybrid holders to form a view on the outcome of our offer for the hybrids,” says one Paperlinx director.

Still, Price says the company’s capital structure will improve if it manages to get a simple majority of the hybrid holders to agree to sell their securities in return for ordinary shares.

There are about 2,000 holders of the hybrids, chief among them being the New York hedge fund Coastal Capital, which has 13 per cent of the securities. Macquarie Group Ltd was the structurer and lead manager of the hybrid sale in 2007 under previous Paperlinx management.

Moelis & Co and Baker & McKenzie are advising Paperlinx.