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.
Exclusive: World’s most pristine waters are polluted by US Navy human waste
Saint Patrick's Day: Google Doodle celebrates patron saint of Ireland - here are 10 things you didn't know about the man himself
Missing Malaysia Airlines Flight MH370: Did jetliner fly into area controlled by Taliban? Net widens after claims final satellite signal could have been sent from the ground
Britain’s five richest families worth as much as poorest 20 per cent, says Oxfam
Nasa-funded study warns of ‘collapse of civilisation’ in coming decades
Ukip and Nigel Farage on course for remarkable victory in European elections
Katie Hopkins continues campaign to become Britain's most hated talking head with poorly timed Bob Crow tweet
Tony Benn was entirely ineffectual - and usually wrong
No EU referendum under Labour: Ed Miliband to reveal that vote on membership is ‘unlikely’ in next Parliament if party wins power
The rise of Ukip: Study warns Labour that Eurosceptic party's electoral base now 'more working class than any of the main parties'
Europeans have ‘got whiter’ due to natural selection in past 5,000 years, scientists say
- 1 Is your name now 'banned' in Saudi Arabia?
- 2 Gender-specific books demean all our children. So the Independent on Sunday will no longer review anything marketed to exclude either sex
- 3 Missing Malaysia Airlines Flight MH370: Did jetliner fly into area controlled by Taliban? Net widens after claims final satellite signal could have been sent from the ground
- 4 Nasa-funded study warns of ‘collapse of civilisation’ in coming decades
- 5 'Missing Malaysia Airlines Flight MH370 plane found in Bermuda Triangle!' Viral Facebook links are profiting hackers
iJobs Money & Business
£50000 - £60000 per annum: Harrington Starr: Application Support - Sophis, Fid...
£30000 - £50000 per annum: Harrington Starr: Application Support Analyst - SQL...
£55000 - £65000 per annum: Harrington Starr: Front Office Support Analyst -Cha...
£70000 - £85000 per annum + BONUS + BENEFITS: Harrington Starr: A leading prov...