Predator Crown Financial seeks answers to takeover rebuff

SURFSTITCH has put its shares in a trading halt as it faces questions about whether it is in a “perilous” financial position.

SurfStitch put its shares in a trading halt on Tuesday. Pic: Nathan Dyer

SURFSTITCH has put its shares in a trading halt as it faces questions about whether it is in a “perilous” financial position, after knocking back a hostile takeover bid from Crown Financial.

In an open letter to new chief executive Mike Sonand, Crown Financial managing director Joakim Sundell, who is leading the takeover by its related entity Coastalwatch, grilled the company on its “disappointing” response to its $55 million offer.

Mr Sundell asked why SurfStitch was unable to meet Crown’s indicative proposal.

The proposal required SurfStitch to complete the sale of subsidiary Surf Hardware International to an independent third party for total cash “consideration of at least $20 million” and for SurfStitch to have “no borrowings and $17 million cash in bank”.

It also said that SurfStitch should “have no pending litigation outside our related entities” and not be subject to an investigation by the ASX or the Australian Securities and Investments Commission.

SurfStitch said last week in its release updating shareholders of the takeover bid at 20¢ a share, that the “indicative proposal was not in the best interests of the company”.
It said the “highly conditional nature” of the offer was “not capable of being satisfied by the company”.

Mr Sundell said SurfStitch provided an “incomplete” response and asked the company to confirm its true financial position amid fears that its cash balance could have fallen to a “perilous” position.

“The cash balance for the company at June 30, 2016, was reportedly $21.37 million,” Mr Sundell wrote in a letter obtained by The Courier-Mail.

“If the company cannot meet the requirement of having a $17 million cash position, are you in fact telling us/shareholders that there has been a fall of over $4.37 million in cash reserves since the balance date? This would then only allow for another $1.6 million to $2.6 million fall for the remainder of FY17, which seems perilous.”

He also asked SurfStitch to confirm its profit guidance remained correct, after the company issued three downgrades this year, and to confirm if it was the subject of any other litigation or investigations.

SurfStitch put shares in a trading halt on Tuesday so it could “assess the letter” and said it would update the ASX by Thursday. Its shares last traded at 17.5¢, down from a high of $2.13 in November last year. Crown Financial is SurfStitch’s largest shareholder. Its AGM is next Wednesday.