The Karam family has just the ticket for little loss-making Mark Sensing

AT THIS stage of the year, the hottest tickets in town are to football finals and the attached red carpet awards in which blokes who make a living grunting and slapping at one another in grassy paddocks suddenly find themselves, and their partners, critiqued for their dress sense.

Perhaps there should be an awards ceremony for stock exchange-listed companies after annual reporting season - Best Excuse for Profit Sliding, Cheekiest Pay Rise, Longest Time Without a Profit or Dividend and Still Trading, Most Obscure Financial Acronym Used to Make it Sound Like the Company is Performing Better, Best-Disguised Listing of a Private Company by Making it Sound Like an Acquisition.

In that final category, Lancelot believes he has found a winner in Mark Sensing's purchase of the Karam family's TMA Group of Companies, which long-suffering Mark Sensing shareholders get to vote on late next month.

Mark Sensing, which has never been much of a medal winner for its shareholders, specialises in making hot tickets - or, more correctly, producing heat-sensitive, coated papers often impregnated with security devices.

The company's products are used for everything from betting and car parking tickets, to cash register receipts and tags on animal carcasses.

(As an aside, Lancelot can tell readers from bitter experience that heat sensitive receipts, such as petrol discount coupons, ought not to be pinned to the kitchen bench with a hot cuppa - they just go black.)

Unfortunately, while Mark Sensing has always seemed on the cusp of greatness with innovative contracts throughout the Pacific region, such as its betting tickets for the Hong Kong Jockey Club, it hasn't done this with any great degree of profitability. TMA is in a similar line of the thermal papers business, only far more profitable.

Until now "dividend" has not been a word in Mark Sensing shareholders' lexicon, and the company's share price has neatly avoided most of the market boom of recent years. Its shares did reach a dizzying 17 each in late 2006 (they struggle to cling to 2 at the moment) when investors were taunted with the prospect of a major acquisition. It didn't happen. Last year there were months of merger talks with a Malaysian group, Sonofax. It didn't happen.

At least shareholders now have a deal in front of them. The massive 117-page document for the TMA deal, however, has a "damned if you do, damned if you don't" air about it for Mark Sensing's current investors.

The papers highlight the doubts in the latest accounts about whether the company can pay its debts when they are due - the "going-concern" test. Mark Sensing has lost a total of about $1.5 million in the past two financial years, and was in breach of some covenants (it never said which or how material) on its borrowings from ANZ. The bank did not act on the breaches and the board has now signed ANZ up for another year on the $1million overdraft and $2.3million bank bill arrangements, with new covenants.

Mark Sensing chose, however, to wave another stick over the heads of shareholders - that the agreement with TMA is subject to a $500,000 "break fee". That means if the deal is called off, Mark Sensing may have to pay what for it is a whopping amount of cash to the Karam family, adding another layer of uncertainty to the company's future and the shareholders' decision-making - the "damned if you don't" side of the equation.

Lancelot has never understood why break fees, or "reverse dowries", are allowed. They seem to be antithetical to the concept of free trade, instead, creating a financial disincentive for investors to oppose or reject deals negotiated by their boards. That seems to make a mockery of shareholder democracy.

On the "damned if you do" front, Mark Sensing's problem is that it is doing a deal that might be attractive in other circumstances but, because of its performance and the more than usually risk-averse market, will see existing shareholdings almost diluted out of existence.

Their shares will be equivalent to 17.5% of the post-deal stock, which means Mark Sensing will have more than 1 billion shares on issue, of which 82.5% will be in the hands of the Karams.

So Mark Sensing is not so much buying a business, as the Karams are getting a stock exchange listing by sacrificing control over less than 20% of their private company. That is effectively acknowledged in the papers sent to shareholders that say "the merger is determined to be a 'reverse acquisition' for accounting purposes".

Under the deal a separate company, TMA Properties, will get about $600,000 a year in rent for the site from which the main TMA business operates. The property company is jointly owned by Anthony Karam and Corriene Karam, who will be, respectively, managing director and operations director of Mark Sensing post-deal.

Anthony has been running TMA since 1996, the year after he graduated from St Patrick's College in Sydney's Strathfield. TMA, according to the numbers, is churning out more than $20million a year in sales and more than $3 million in earnings before interest and tax on the back of that.

Not only is it bringing its superior performance to Mark Sensing, but it has introduced its bank, National Australia, which is likely to replace ANZ as the main lender.

It's not quite Hobson's choice for Mark Sensing's shareholders, but the brutal reality is the company is not prospering as it is, and is unlikely to - so owning a small amount of something is, as they say in investing, better than having 100% of nothing.