Silver Chef scheme 'not fair' but 'reasonable'
Silver Chef has issued a scheme booklet ahead of shareholder meetings called to approve the takeover of the embattled finance company by a consortium of investors led by private equity firm Next Capital.The scheme booklet includes an independent expert's report, which concludes that the scheme is reasonable "having regard to commercial and qualitative factors", but it is not fair to shareholders because the scheme consideration is below its assessment of Silver Chef's fair value.The independent expert assessed the underlying value of the business at 90 cents to $1.13 a share on a controlling basis. The scheme consideration will be between 63 and 76 cents a share.Silver Chef has been operating with the support of its financiers since July last year, when it breached its loan covenants. At the time it had A$45 million drawn under its debt facility.Since then it has had an ongoing debt facility waiver, as it has looked for a way to recapitalise the business.One condition of the waiver was that originations had to be funded out of operating cashflow.Silver Chef said the waiver conditions had "progressively and significantly reduced the near-term financial outlook for the company".This, combined with a steep fall in the share price (which was at a peak of $11.20 in October 2016 before falling below $1 this year), made it almost impossible for the company to raise capital.When the Next Capital deal was announced last month, Silver Chef's independent directors unanimously recommended the scheme, subject to review by an independent expert.The company's problems go back to its decision, early last year, to get out of its GoGetta business, which was not making an acceptable return and was also in trouble with ASIC.ASIC took the view that some of GoGetta's contracts were actually consumer lending and that the company did not have the appropriate licence. The company made a provision of around $4 million for customer remediation.Write-downs of expected returns from GoGetta and an increase in provisions tipped the company into loss in 2017/18 and the six months to December. Those write-downs also caused the company to breach its financial covenants.The independent expert's report says: "Given the current financial situation of Silver Chef and the covenant breaches discussed above, the proposed scheme provides an ability for Silver Chef shareholders to realise value, as in the absence of the proposed scheme existing waivers would need to be further extended or waived, and there is no guarantee that the financiers would continue to be supportive."