No Pain, No Gain: Universal looks set to go forward in reverse
Saturday 05 March 2005
White Nile, the controversial oil minnow, and
Universal Direct, a little reseller of discounted electrical goods, are not too difficult to find.
Similarities between White Nile, the controversial oil minnow, and Universal Direct, a little reseller of discounted electrical goods, are not too difficult to find. Their shares have been suspended after enjoying spectacular performances ahead of what should be transforming acquisitions. And both companies are headed by well-known City personalities.
White Nile, with ambitions in the Sudan and run by former Test cricketer Phil Edmonds, soared from 10p to 138.5p in a few days, before trading was halted; Universal, where top City spin doctor David Wright is in command, surged from 10.5p to 35p in little more than a month and dealings were then frozen. I realise that the Universal gain pales into insignificance when compared with the incredible goings-on at White Nile but, nevertheless, such an advance is quite staggering and deserves more than passing admiration.
Just how long White Nile shares are due to remain in the investment wilderness is not known. Universal has high hopes of returning to the stock market in April. When it does re-appear, it will be a very different animal from the one that Mr Wright moved to as chairman last month.
The company had already seen colourful times. It was once AH Ball, a pipe-layer. Then the fund manager Edward Adams arrived and it re-emerged in the internet boom as MediaInvest. It quickly became one of the dottier stars of the madcap dotcom spectacular. From a capitalisation of £1.5m, it grew into a £250m enterprise with its shares hitting a remarkable (and no doubt unrepeatable) £58.
Reality returned as the dotcom mania subsided. The shares crashed and Adams, who has become a revamp specialist, embarked on another reinvention, turning MediaInvest into Universal Discount and buying the electrical reseller as well as a pet food business. Then along came one Wayne Sharpe to entertain the group's long-suffering 1,500 shareholders. Mr Sharpe built a 16 per cent interest; Mr Wright picked up a 17 per cent stake and serial investor Bob Morton clambered on board, buying a 12 per cent involvement. Mr Adams retained about 12.5 per cent.
It became apparent that a major deal was being hatched. But nobody was talking. The clue, however, was provided by the presence of Sharpe. He is the man behind Bartercard International, an Australian creation aimed at small and medium-size businesses. It now has 70,000 members spread across 20 countries and seems to be on a roll.
Universal is buying Bartercard in exchange for shares. In every sense, it is a reverse takeover with 217 million shares (priced at 30p) being used as takeover ammunition. The deal values Bartercard - its shareholders will have 95 per cent of the enlarged group - at £65m. Quite a coup for the 60-year-old former financial public relations man who started his City career at the Financial Times, then went into PR and played a major role in the creation, through acquisitions, of Incepta, the powerful Citigate Dewe Rogerson group. Incepta, with a capitalisation of £122m, is now involved in takeover talks with rival Huntsworth.
Mr Wright, who resigned as chairman of the PR giant in February last year, will continue to head the group with Mr Sharpe, who founded Bartercard in 1991, as chief executive.
The deal will transform Universal, which, as befits the stock market element in a reverse takeover, is loss-making, into a profitable enterprise. For Bartercard made profits of nearly £1m in the year to last June. The British operation has experienced difficult times but is expected to break even in the current year.
The Sharpe recipe is, like so many successful off-beat business developments, relatively simple. It is a form of barter exchange. Traders swap goods, either directly or by using Bartercard points, without the tiresome requirement of involving old-fashioned cash. For many traders, therefore, it has cash-flow advantages.
There are, as far as I am aware, no profit forecasts floating around the City for this latest reincarnation of the old AH Ball, which, I recall, enjoyed quite an eventful stock market life. But Mr Wright has set himself the task of eliminating losses at Universal's two rather disparate businesses and hopes they will soon be profitable.
So, with Bartercard seemingly set to make further progress, the combined group should, with a little luck, be riding well above the £1m profits mark in its next year. And I would not be surprised, now the old spin doctor has recaptured the takeover bug, to see the group padding along the acquisition path again in the not too distant future. After all, when he arrived at Universal, Mr Wright said he was "exploring one or two acquisition opportunities". I wonder if another is still in his sights.
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