A True and Factual Account of Fraud and Corruption
This section sets out how a rosy and completely misleading picture was being painted by the Board of the Company’s future prospects over Pocock’s period of tenure, clearly, in our contention, intended to encourage people to purchase shares right up to the point when the ‘restructuring’ options had already been decided and control was being passed to the Lenders.
· s397, item (3), of the FSMA 2000, defines market manipulation as:
“(3) Any person who does any act or engages in any course of conduct which creates a false or misleading impression as to the market in or the price or value of any relevant investments is guilty of an offence if he does so for the purpose of creating that impression and of thereby inducing another person to acquire, dispose of, subscribe for or underwrite those investments or to refrain from doing so or to exercise, or refrain from exercising, any rights conferred by those investments.”
· 30 July 2012 RNS – Update on capital restructuring
Wigley: "Following the appointment of Goldman Sachs and Greenhill as advisers in May and an extensive review of the options, the Board has decided to move proactively and engage with our stakeholders. Our aim is to formulate a capital structure which will support the Group's exciting business potential while safeguarding existing shareholders' interests to the fullest extent possible”
This was the first indication that Hibu was actively differentiating between 'stakeholders' and 'shareholders'.
· 25 July 2013 – Letter from the Chairman
Wigley: "In July 2012... I reiterated my commitment to formulate a capital structure which would support the Group's potential. We have vigorously pursued such a solution and the rights of existing shareholders have been strongly argued. However, to implement the new required structure, the Lenders – given they will see around £800 million of the debt owed to them wiped out, and their cash-interest paying debt reduced by around £1.7 billion – would only agree to a structure that did not permit any payment to shareholders. Since the mechanic by which the restructuring will be implemented does not require shareholder approval, the Board had no ultimate sanction by which to force Lenders to pay shareholders for their shares."
This announcement came despite previous written assurances from the Board that shareholders’ interests would be protected to the fullest extent possible and that shareholders would be consulted. BOTH OF THOSE PROMISES HAD BEEN BROKEN.
From Chief Executive MIKE POCOCK
· 18 May 2011 – from The Independent
"The digital marketplace is already twice the size of the total print market and some ten times larger than the segments of the print market Yell traditionally addressed," Mr Pocock said. "Small shares of this fast-growing and highly fragmented market can mean very significant, profitable growth”; “We have a good machine in place," he said. "We just have to redirect it."
http://www.independent.co.uk/news/business/analysis-and-features/r-for-recovery-plan-yell-plots-digital-future-2285553.html
· 12 February 2013 RNS – Interim Management Statement
"The Group continues to make significant progress in executing its digital strategy and preparing for a capital restructure. Digital services revenue is now at an annual run rate of £180m and continues to grow, up 31% on the prior year reflecting the digital expertise that we are now able to offer our local businesses. Total digital revenue is now 36% of revenue, equivalent to a run rate of over £450m per annum."
· 14 July 2011 RNS – Yell announces new strategy
The Directors encouraged high hopes when they advertised a “detailed four year programme to transform the Group”, which they said they would ensure the company “Increases available market 10 times from around £28 billion to around £280 billion between now and 2015”, because “Only 1% share of expanded available market would deliver material growth.”
Yet, one year later, Pocock and Bates swapped the free shares for a cash retention and incentive plan, because they knew it was not prudent to invest in the company’s shares.
· 25 July 2012 RNS – Results for the three months ended 30 June 2012
The Director’s allayed fears when they reported that, “the Group's cash flow forecasts show that in the twelve months ending 30 June 2013 interest payments will be fully met, with further cash generated to repay debt.” In August 2012, they were asking for a waiver for the debt (see Waivers and cessation of debt repayments).
· 25 July 2012 RNS – Quarterly Results
Pocock: "As previously announced, the Company is reviewing its capital structure. The Group intends to consult with its key stakeholders, including Lenders and shareholders, over the coming months in order to put in place an appropriate Group capital structure within the current financial year. A number of options are being considered and, while no decision has been made yet, certain options may result in a dilution of existing shareholders' interests."
This shows that the Directors knew shareholders should be consulted.
NO SUBSEQUENT CONSULTATION WITH SHAREHOLDERS EVER TOOK PLACE and what was dressed up as only a possible ‘dilution of shareholder interests’ transformed into the shares being deemed ‘worthless’ precisely one year later.
From Chief Financial Officer TONY BATES
Jim McCusker’s lawsuit alleges, “On February 26, 2013, at a staff meeting …Mr. Bates admitted that the budgeted revenues were unrealistically high; however, he stated that hibu would not revise the fiscal year 2014 budget because the inflates numbers were already submitted to the CoCom for purposes of hibu achieving a favourable restructuring of its debt.”
· 14 November 2010 RNS – Board Change
Bates: "I am excited to be joining Yell. Yell is a high quality organisation, which meets a fundamental business need. It has by far the leading brand and position in its markets, both online and in print. It's profitable and very strongly cash generative."
· 20 July 2011 RNS – Result of AGM - issuing the financial statement as CFO
Bates: "The Group is cash generative and profitable” and "Yell believes that the Group has sufficient access to working capital to meet its operating and capital expenditure requirements in the 2012 financial year".
From this, it appeared that there was no immediate risk to the company as there was enough money to see it through for 1.5 years (to 31 March 2013). The RNS also stated that Yell has “sufficient facilities to meet its normal funding requirements over the medium term”, and had “cash of GBP200.5m at 31 March 2011”
· 25 October 2012 RNS – Update on capital restructuring
The Board: “As is customary in capital restructurings, the Group has decided that it is appropriate to suspend all further payments of principal and interest to the Group's Lenders until such time as a restructuring of its balance sheet can be concluded.”
· 13 November 2012 RNS – Interim Results
Bates: "On 25 October 2012 the Group announced that it would be suspending all further payments of principal and interest to Lenders until such time as a restructuring of its balance sheet can be concluded…. As can be seen in the accompanying financial information, the Group retains a healthy cash balance and therefore this decision is driven by a desire to treat all Lenders fairly and equitably, rather than by any liquidity concerns”
So, within only a few months of restructuring talks commencing with Goldman Sachs and Greenhill, the hibu board had decided to suspend debt repayments to Lenders in spite of there being a “healthy cash balance” (12 November 2012 RNS – Restructuring Update) available to continue paying them. It was in our contention a deliberate and unnecessary decision which meant that, coupled with massive write-downs of asset values, control was being passed to the Lenders, without any opportunity for shareholders to mount a challenge.
· 15 December 2010 RNS - on buying back £150 million of debt
Bates: "This early repayment is a very efficient use of our surplus cash and it reflects our ability to continue progressively paying down our debt through free cash flow."
· 15 April 2011 RNS - on buying back a further £139 million of debt
Bates: "Yell's strong cash flows have enabled the Group to meet all of its scheduled debt repayments and to accelerate early repayment of debt for the second time in four months."
· 27 February 2012 RNS – on conclusion of debt repurchases
Bates:- "This repurchase of over £400m of Yell debt, at below 40% of its face value, is a significant further step towards the transformation of Yell Group through our new Strategic Plan announced last summer."
The precedent had very clearly been set for the continued repurchase of debt to improve the balance sheet, and was received very positively by the market. Shareholders were also encouraged by the company’s confirmed ability to reduce its debt level which had already fallen nearly 50% from a peak of £4.2 billion in 2009.
But no further debt buy-backs ever took place despite the repeatedly positive picture presented by Tony Bates, and no explanation for this change of course was ever given.
· 19 December 2011 RNS – on agreement to increase headroom under debt covenants
Bates: "We are pleased that, with this decision, Lenders have strongly endorsed our new strategy and have given the Group additional freedom to carry out its transformation programme."
This told the market that Lenders were displaying flexibility with regard to Yell's future plans, and offered no hint of the massive risks to shareholders’ investments.
10 months later, shareholders were told that their shares might have ‘little or no value’.