Small Talk: Blue skies beckon for Azure Holdings

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The Independent Online

Things are hotting up at Azure Holdings on two fronts. The AIM cash shell, formerly know as Room Service, is in reverse takeover talks with a private biotech company called ValiRx.

Small Talk has heard negotiations are progressing well and a deal could be announced within a month. ValiRX is developing a number of products for the pharmaceutical industry. Probably the most exciting is GeneICE, a treatment that aims to freeze the growth of cancerous cells. Once Azure has completed the deal with ValiRX, brokers expected the combined company to return to the market with a valuation of more than £11m.

Meanwhile, a David-versus-Goliath-type legal battle is being fought between a shareholder of Azure and the London Stock Exchange in the High Court. Nigel Smith, a 46-year-old shareholder activist and former Navy officer, accuses the exchange of rigging the value of Azure shares and of market abuse. Mr Justice David Mackie heard the case last Friday and proceedings are expected to continue this week.

Mr Smith is angry at the way the LSE settled the short-selling scandal at Azure, which resulted in the stockbroker Evolution Group being fined £500,000 for market abuse by the Financial Services Authority in 2004. Back in those days, Azure was called Room Service.

The affair started in the autumn of 2003 when it emerged that Evolution had sold two and a half times the issued capital of the AIM-listed company. This created huge settlement problems with many investors unable to receive shares they had bought in the group. On 22 October, trading in the stock was suspended.

In an effort to resolve the hiatus, the LSE organised a so-called "settlement offer" whereby those investors left without their shares were offered a refund of 11.2p a share, worth £140,000, to be paid by the market makers that sold them undeliverable stock.

But, in Mr Smith's view, Room Service's shares would have been worth a lot more than 11.2p if Evolution had been forced to unwind its massive short bet. He accuses the exchange of rigging the "settlement offer" against his interests and those of his fellow investors.

Mr Smith looks to have a point. In March 2004, he received a letter from the LSE assuring him that the 11.2p-a-share valuation was reasonable and was based on the company's fundamental worth. The letter also said: "The valuation was made by an independent expert commissioned by the Exchange, in consultation with the FSA. Neither the Exchange nor the market makers had any influence on the valuation."

However, an investigation into the matter by Keith Woodley, the LSE's complaints commissioner, discovered that this was not true. In a report published in June 2004, Mr Woodley found the exchange had told the independent valuers to disregard the key effect the short position in the market would have had on the company's valuation.

His report says: "The valuers have informed me that they were expressly instructed to discount any effect that the substantial short position might have on the valuation of the shares in Azure Holdings (formerly Room Service Group)." The complaints commissioner's report also backed up Mr Smith's claim that the shares were worth far more than 11.2p.

The case is now in the hands of Mr Justice Mackie and should be concluded next week. The LSE says Mr Smith has no reasonable grounds for his claim and has applied to have it struck out of the court. Mr Smith, who last week represented himself in court, has been fighting the case for three years. If he loses, he says he will face bankruptcy due to the huge legal costs being claimed by the exchange. Watch this space for the result.

A creditable listing?

For small businesses who struggle to get a loan to expand because they have been trading for too short a time or have a poor credit history, 1pm plc could be the answer. The group, which will today signal its intention to float on AIM, specialises in lending money to such enterprises. It typically helps fund the purchase of essential items such as vans, trucks and machinery. The average loan it makes is around £15,000.

However, as with everything in this world, 1pm's loans come at a price. The average interest rate it charges is around 20 per cent.

1pm was founded by Tony Williams and John Stickley in 2001. It has been pretty much profitable from the beginning and recorded a pre-tax gain of £240,000 for the year to 31 May 2006. 1pm hopes to raise £1.3m of new money from its float and expects to see its shares trading by the end of August. It will use the cash to write extra business. Brokers forecast 1pm to be valued at about£2.9 m by AIM.