The intriguing takeover bid for Allco Equity Partners by Regent Street Installments Pty Ltd has taken a turn, with ASIC sending Regent Street executive director, the once-jailed Stephen Matthews, a letter rejecting the audacious bid.

ASIC is threatening to run off to the Takeovers Panel to seek a declaration of unacceptable circumstances should its concerns not be addressed. ASIC’s objections pertain to Regent Street using the takeover provisions of the Corporations Act to effect a capital reduction and discriminating between those shareholders accept the bid and those who reject it (shareholders who accept the bid may receive 20 cents less per share those who don’t).

So dire is AEP’s predicament and so poor Allco’s reputation (the still suspended Allco Finance Group owns 19 percent of AEP), that a low-ball bid from a shelf-company offering consideration by way of a 90-day bill of exchange and subsequent capital reduction has actually caused its share price to spike by 20%.

Regent Street’s enterprising proposal involves a company run by a self-styled “shareholder activist” who was once a guest of Her Majesty taking control of AEP and paying the current shareholders with their own money. While the scheme seems preposterous, it actually may be financially feasible because AEP has been discounted by the market to far below its net tangible asset value (Regent Street’s bid is conditional upon AEP’s net tangible assets not falling below $4.00 per share – at the time of the bid, AEP was trading at around $2.00 per share. AEP’s last statement to the ASX in November 2007 claimed that it had net tangible assets of $4.12 per share).

Ultimately, Matthews’ ploy isn’t overly complicated. Every person who has ever watched Wall Street would have looked lovingly at AEP’s situation and considered a play, but inevitably backed off when they realized Allco Finance’s 19%, David Coe’s 6% and board member Greg Wooley’s 25% stakes would easily block any full takeover and prevent a liquidation of assets. However, that sticking point doesn’t seem to have bothered Mr Matthews.

It has been a rapid fall for AEP, which floated at $6.00 per share back in December 2004, raising $500 million. Prior to Regent Street’s offer, AEP shares had dropped to $2.00, with a market capitalisation of $236 million. AEP has therefore managed to drop by 67% at the same time as the market has increased by more than 22%.

The bid hasn’t come at the best time for AEP chairman, David Coe. The embattled former Mallesons partner and Rich Lister already has his hands full keeping Allco Finance Group afloat, with the heavily engineered finance company continuing to withhold its December results from the market.

Peter Fray

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Peter Fray
Editor-in-chief of Crikey