EightBlack.

I had a client call me the other day and asked if I had shares in BlueFreeway. After reading one of the recent posts about the carnage over at BlueFreeway, he was concerned that I was some sort of disgruntled investor. Which I’m not. And I really don’t have it in for them.

But this whole saga simply perplexes me.

To put this into some sort of basic perspective, if you had purchased $1000 worth of BlueFreeway stock exactly 1 year ago, that would be worth the princely sum of $42 as of close of play today.

Now I didn’t do that well at economics at school, but even I know that’s bad.

Last Friday, the stock resumed trading after a months hiatus. When it had stopped trading 4 weeks ago, the share price was at 24 cents. Finished close of business on Friday the 13th at 9.3 cents. Natalie broke the story here.

On Monday the 16th June, over 16 million shares traded hands. Finshed the day at 5 cents. The market cap of the entire company is worth no more than $7 million dollars.

The guys over at BlueFreeway must be chewing their fingernails to the quick. Or maybe their bankers are, given that the facility that they have with the NAB has hit its limit of $34.6 million.

What I don’t get is the motive behind the IPMG Group’s decision to effectively bail the company out. First they rode in on their white horse and scooped up 19.9% of the company. I dare say they paid more than 5 cents a share.

They then agree to inject an immediate $6.5 million cash injection by way of a convertible note. According to the press release last Friday, the note will be convertible into BLU shares at 12 cents a share and will attract an interest rate of 400 bps (basis points) above the BBSY whilst being serviced otherwise 600 basis points while being capitalised.

In plain english, the BBSY refers to the Bank Bill Swap Bid Rate and 400 basis points refers to 4% above that (or 6%  when it refers to 600 basis points).

Obviously the IPMG guys are no fools. They would have poured over their numbers. And they can well afford to bail the entire thing out, pay out all the bank debt and appease unhappy creditors if the thing goes completely pear shaped.

Michael Hannan and the rest of the Hannan Clan benefited a couple of years back when their entire magazine and newspaper portfolio was sold to in 2 separate deals for the $350 million mark. Assuming he still has some of it left after his divorce around the same time, he still should be fine with whatever he chooses to do with BlueFreeways bankers and finance folks.

Why IPMG has such a hard on for BlueFreeway I’m not sure. I’d sure love to ask them.

When you crawl all over Google in search of information around IPMG, you are quickly impressed with the rich history of the company, the domination of one industry vertical (ie printing), the continued investment into the latest technology and equipment and the sheer focus in sticking to what it knows best. Printing.

Not the web. Not as a corporate rescue merchant. And not as a company who has a reputation for taking on projects that need a very strong stomach and a boatload of cash to revive.

By his own admission, his foray into publishing and the magazine business ended up with the family company selling all those assets. For a tidy sum as stated above. Hannan cited “a lack of growth opportunities and none on the horizon” as the key drivers behind the sale.

If IPMG are about making money and about passing the torch from one generation to the next, then I fail to see what sort of inheritance the major stakeholding in BLU will yield. It could take years for this thing to recover - if it ever does.

And what sort of growth opportunities can the group exploit if they are have a boat anchor around their necks?

My humble knowledge of the digital landscape is that morale is key, the right environment, cool projects, plenty of smart bastards in the same office and hopefully, light at the end of the tunnel. And great clients.

Hard to attract if you’ve been lumbered with something akin to a STD. The stigma of BlueFreeway will tarnish each and every member company and their staff. Not their fault. But a fact they have to live with.

IPMG are in for a lot more than the $6.5 million they have initially promised. Their findings, during the trading suspension, revealed that the company needs around $9 million immediately, will post a $6.8 million dollar loss (lets call it $7M) this financial year (instead of $200K), and Hannan has personally guaranteed to underwrite the 3 for 2 rights issue (to raise another $12M), if the market doesn’t come through with the money.

He’ll be reaching for his cheque-book sooner rather than later.

Now which existing investor in BLU, who has all their faculties together, would agree to a 3 for 2 rights issue at 10 cents, when yesterdays stock price ended up at 5 cents.

They also have this small detail of the $35 million they owe the NAB. At present, most senior Aussie bank executives have no sense of humour and because of the train wrecks with Opes Prime, the nervousness around the viability of even industry titans such as Babcock & Brown, plus a litany of others, the banks credit departments are calling the shots.

Apparently, you now meet with the banks and they come armed with a toilet brush and 3 people (who look like they just killed their parents). Its not pleasant.

Or something like that.

I had a meeting with Stuart Mitchell a little while back. While he didn’t give much away about their perspective on whatever deal they had in mind (probably because his old man wasn’t in the room), it’s public knowledge that Mitchells were sniffing around BLU.

But even Harolds appetite for large meals wasn’t enough. Mitchells probably bailed as soon as they lifted the hood on what was promised to be a Ferrari and soon discovered a Kia Picanto (or Salsa, or Avocado) or whatever the hell they call those silly little Korean cars.

Last week I was supposed to have lunch with Lori Silver from Clear Light Digital. She never showed. And I never heard from her - despite my emails and voicemail. Odd I thought, given that she called me in the first place. Now, being stood up by women is not a new thing for me. But I thought this was weird.

All I know is that if I had sold 27% of my company (which Lori et al did) for $924,000, it would piss me off no end to keep remitting one third of my earnings back to a mother ship which was about as sea worthy as the Titanic.

If the original sales pitch to all these independents which BLU went and acquired, was that the corporate entity (ie Head Office) would be there to provide leverage, capital and expertise, then it’s clearly failed. Many of the individual companies now within the portfolio would (or could) be worth more than the market cap of the whole shooting match.

Time will tell whether or not Hannan and his team can ressurrect the ailing digital group. And his absolute passion for remaining well out of the public eye and his notion that you can employ people to keep you out of the media is about to be blown to smithereens.

Because he’s taken the reigns, he’s also taken onboard the very public role of company punching bag. Shareholders, bankers, clients, staff and the media all want a piece of him.

And no matter who he employs to control the environment, the web has already proven that no matter what length you go to, the conversation exists. With you. Or without. It doesn’t care.

Tomorrow I’m in Sydney. And I’m having an off the record chat with someone who knows the other side of the story to BlueFreeway. It’s a pity the person won’t go on the record. The story deserves to be told.

Interesting times ahead.

*Stock Quote courtesy Business Spectator, Image Stuart Mitchell courtesy Mitchell website

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This entry was posted on Tuesday, June 17th, 2008 at 10:00 am and is filed under News. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.