Small Talk: Intrigue at Highbury House as new restructuring proposal is rejected

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The Independent Online

Something very curious indeed. An e-mail arrives with Small Talk entitled "Proposed article in the press for the day after the Future offer for Highbury House Communications' magazines is posted", and subtitled "Will Highbury turkeys vote for Christmas?"

Something very curious indeed. An e-mail arrives with Small Talk entitled "Proposed article in the press for the day after the Future offer for Highbury House Communications' magazines is posted", and subtitled "Will Highbury turkeys vote for Christmas?"

Disaster-stricken Highbury, publisher of magazines such as Fast Car, agreed a takeover by its bigger rival Future earlier this year, but the deal collapsed when it was referred to the Competition Commission. Instead, Highbury is now proposing to sell most of its magazines to Future to help pay down some of its debt mountain. Shareholders were sent details of the deal last week and will vote on the plan on 16 June.

Our mystery e-mailer writes: "Shareholders are now being recommended by their board to vote for a revised offer at a knock-down price for businesses accounting for over 90 per cent of profits. The disposal may please Highbury's bankers as it will repay about £28m of debt owed to them, but it will leave a further £25m un-repaid and serviced by a mere £440,000 of earnings (before interest, tax and amortisation). What chance have the shareholders, who have seen the share price fall from 15p to 1.75p under existing management, of getting any return out of this? It seems most unlikely that the banks will be repaid in full, let alone that anything will be left over for equity. So the shareholders are like turkeys being asked to vote for Christmas.

"Surely what Highbury needs is a turnaround team at its helm to grasp the nettle of Highbury's existing businesses, stabilise them and sell them at a sensible price (or maybe even grow them into a proper business). Shareholders should vote down Future's revised offer, and then work with the banks and a new management team to rebuild the business.

"End of proposed article."

Our mystery e-mailer makes a good case that the businesses remaining when Highbury completes its disposal - mainly videogames and hobbies publications - are a poor basis for a financially stable future. Even Highbury admits a refinancing will probably be necessary in the near future, with potentially serious dilution for shareholders. But the company also says that it will fall into the hands of its banks by the end of this month if the disposal is not completed.

Small Talk understands Highbury has just turned down a restructuring proposal from a venture capital group, which would put in their own management team. Instead, the existing management is pressing on with seeking shareholder approval for the disposals. Investors will want, however, to question the board on the details of the recent proposal, and to understand whether Highbury's long-term prospects really justify its rejection.

Debt Free Direct faces aggressive new rival

Several high street banks have warned in recent weeks that bad debts have started creeping up, as credit card and loan customers struggle to keep up their repayments. Consumer debt levels famously topped £1 trillion in the UK last year, and it might now be payback time. But what about those who cannot repay their debts?

Increasing numbers are choosing individual voluntary arrangements (IVAs) as a last resort to stave off bankruptcy. An IVA is an agreement between a debtor and their creditors where the lenders write off around half of the debt, while the debtor agrees to pay a regular sum to cover the remainder. In this new and fast-growing area, the specialist accountancy firm arranging the IVA can take a significant cut, and Debt Free Direct, the first such arranger to float, has seen its shares soar 320 per cent since 2002.

But might the high margins that have fuelled Debt Free Direct's performance be about to come under threat? Almost certainly, yes, and a company planning to float in the autumn is leading the charge.

ClearDebt was set up earlier this year by David Mond, the Manchester-based chartered accountant. He was in the news 18 months ago because he was the administrator of Fads who went on to lead a buy-out of the collapsed DIY chain for £1.

He reckons ClearDebt will charge half the fees of its nearest competitors. Instead of employing large numbers of administrative and call centre staff, the company will focus its efforts on an interactive website, building relationships with lenders and their advisers, and hiring local lawyers and insolvency practitioners on a case-by-case basis. Just five permanent staff can handle 500 cases a year, he maintains.

Mr Mond said: "The Government has been looking for something cheap and cheerful to encourage more people to use IVAs, and I think that I have come up with it. Most of the cost is the cost of employees, and ClearDebt gets round that by making the debtor do most of the work themselves online."

ClearDebt is now hiring an adviser to organise a fundraising and admission to AIM, and it ought to be ready to catch the autumn wave of flotations which usually follows the summer lull. The plan is to raise between £2m and £3m to begin a modest marketing push. Hodgsons, Mr Mond's business recovery practice, currently owns 85 per cent and will not be selling.

Sports Network is real match-winner

Sports Network, the AIM-listed boxing promotions business controlled by Frank Warren, looks like the biggest winner from a weekend of high-profile boxing events.

It promoted the IBF title fight in which the company's star, Ricky Hatton, won a stunning victory on Saturday night over the world champion, Kosta Tszyu, as well as Friday's curtain raiser with another of Mr Warren's victorious protégés, Scott Harrison, the featherweight champion.

Saturday's fight was slugged out in front of a 22,000-strong crowd in Manchester and pay-per-view audiences on BSkyB and in the US, and it ensures that Hatton's next fight will be bigger box office than ever. Insiders, still on a high, were last night talking about finding a venue with three times the capacity of the Manchester venue. All of which makes Friday's share purchase by the Sports Network chairman, David Elstein, look smart timing.

The former Channel 5 boss turned broadcasting pundit has been looking to take a substantial stake since becoming chairman last summer, and Mr Warren sold 6.3 per cent of the company to him at slightly below the market price, 3.15p, valuing the stake at £400,000.

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