Prism's ratchet to riches takes some beating: Comment
Tuesday 17 December 1996
Prism Rail is a stock market vehicle set up by a group of successful bus operators specifically for the purpose of bidding for privatised rail franchises. It has proved a wonder stock, rising fivefold since being floated on the Alternative Investment Market last May. What the founding investors did was grant themselves a lorry load of "free" deferred shares, which become convertible into ordinary shares every time they raise money to finance a rail franchise. This is justified on the basis that the founders put up pounds 2.7m of their own money to cover the costs of tendering for the franchises, none of which is refundable should they fail. Perhaps predictably, they haven't. Prism won its fourth franchise yesterday - the West Anglia Great Northern - and duly announced proposals to raise pounds 12m to finance it.
This is where the wheeze gets really clever ... er, sorry, astute. The conversion rate for the founders is one free share for every four shares issued. So does that mean the founders get free shares to the value of 25 per cent of the money raised? Don't be naive. The rights issue has been pitched at a deep discount to the current stock market price.
Thus for just pounds 12m raised, the founders get pounds 5.4m of worth of free shares. The deeper the discount, the more the founders get as a proportion of the amount raised. Add in the underwriting fee of an astonishing 3.5 per cent, most of which goes to Williams de Broe (this on a deeply discounted rights, but when there's so much money flying around it's only fair to share it out a bit), and you are looking at a cost of capital of something approaching 50 per cent. Even in the weird and wacky world of venture capital, that's going it.
If these franchises turn out to be the gold mine Williams de Broe and others think they are, then nobody's going to complain. But for ratchet should we perhaps be reading Ponzi? Just watch it.
World's most lethal spider found under a bunch of bananas
Rumours that the star wants to move on to pastures new
TV presenter Fiona Bruce seemed a bit startled by the find during the filming of Antiques Roadshow
Comedian says he 'never laughed as hard as I have writing with Rik'
- 1 Jack the Ripper: Scientists who claims to have identified notorious killer has 'made serious DNA error'
- 2 Ebola outbreak: What is bushmeat – and is it to blame for the disease that has killed thousands?
- 3 Star Wars memorabilia called a 'bit of plastic' by Antiques Roadshow's Fiona Bruce valued at £50,000
- 4 Meet Thea, Norway's 12-year-old child bride
- 5 Russell Brand might seem like a sexy revolutionary worth getting behind, but he will only fail his fans
Ebola outbreak: What is bushmeat – and is it to blame for the disease that has killed thousands?
Oscar Pistorius sentencing: Olympic star must serve 10 years, prosecutor urges
Isis fighters 'crucify' 17-year-old boy in Syria
Kentucky gang rape: 15-year-old boy left in critical condition after sexual attack by group at party
Oscar Pistorius sentence: Athlete's wealth and notoriety provoke an overdue debate on South African prisons
Cameron is warned 'no possibility' of UK reducing immigration and that bid to bring in quota on migrant workers would be illegal
Sorry Judy Finnigan – Ched Evans is no less sickening than an alleyway rapist
Residents should throw a street party and mix with immigrant neighbours, councils told
Workers 'could be forced to pay £5 a week' to get benefits
Russell Brand threatened with arrest after filming outside Fox News headquarters
Amal Alamuddin calls for the return of the Elgin Marbles from Britain: 'Injustice has persisted for too long'
iJobs Money & Business
£60,000 - £80,000: Saxton Leigh: Our client is an leading Asset Manager based...
£27000 - £32000 Per Annum: Clearwater People Solutions Ltd: Our large charity ...
£50000 - £55000 per annum + bonus + benefits: Ashdown Group: IT Relationship M...
Highly Attractive Salary : Austen Lloyd: NOTTINGHAM - BRILLIANT FIRM - You wil...