Key points:
- Lamprell has announced that it's pretty much out of working capital
- A refinancing is immediately needed
- There's one indicative offer, from Blofeld, at substantially below market
Lamprell (LON: LAM) shares are in freefall this morning and there's a possibility they will go to zero. Effectively, Lamprell has run out of working capital and needs to be taken over if the business is to survive. There is a potential offer out there but it's at a significant discount to yesterday's closing price. The question of whether there will be a takeover, some recovery for Lamprell shareholders, really depends upon whether potential bidders think it will be cheaper to buy the company, or the assets out of a controlled bankruptcy like Chapter 11, or a pre-pack for the UK.
Lamprell is in a JV in Saudi Arabia over a shipyard and is building rigs. A reasonable enough business we might think given oil prices and so on. Indeed the company states that it has an interesting pipeline of work. The problem is that if just doesn't have the working capital necessary to continue. Shipbuilding and the like is a fairly “lumpy” business in that tens of millions of $ of work are done to reach a payment stage, that's paid for, then the cycle repeats. If the builder doesn't have enough working capital to complete a rig to that next payment stage then it's rather stuck. Which is where Lamprell is.
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As they announce: “the Board is urgently pursuing the options available to deliver a funding solution that will resolve the Group's immediate and severe liquidity concerns.” For example, they've got a rig half completed, but they've got to pay for kit to be installed before they reach the next payment indicator from the client. They've not got the cash to hand to pay the supplier, so can't reach the payment stage.
They detail how they've been looking around for capital. They issued stock a while back, negotiated a term loan and so on. But it's not enough, the business simply needs more of that working capital. One of the reasons we call the system capitalism is that very feature of it – you needs some to be in business. How much depends upon which business line.
The effect of this is that either they gain some funding pretty much right now or there's not really a business there any more. One of their major shareholders, Blofeld, has indicated that it might be willing to take the whole company private. But: “Blofeld's proposal in respect of the Possible Offer is at a very significant discount to the prevailing share price” and that's at a discount to last night's closing price of 22.10p. Which is why Lamprell shares opened at 10p this morning and are now 9.16….and are now 5p, so fast is the price moving in the time to write this.
But there will be some offer for the company, right? Not necessarily – the calculation now going on is whether it will be cheaper to pick up the assets after some form of bankruptcy or reorganisation or before. At some price it's worth avoiding all the lawyers, courts and accountants. At some other price it's not. So it is true, Lamprell could go to zero. The only obvious reason why it wouldn't is that it's cheaper to buy the company, contracts and all, than pick up the assets separately later.