When BT restructured in 2001, the directories business Yell was demerged from the core operations and sold, before being floated on the London Stock Exchange in 2003.

Encompassing the iconic Yellow Pages brand, Yell instantly became a FTSE100 company, with a market cap of about £2.1 billion. Among the beneficiaries was Bob Wigley, Chairman of EMEA Merrill Lynch, one of the investment banks most heavily involved in providing advice to Yell on the flotation.

The Yell Board of Directors then embarked on a spending spree, purchasing a directories business in the USA (TransWestern) for £1.2 billion in 2005, and 60% of another directories’ giant in Spain (TPI) for £2.6 billion in 2006, as well as smaller ones in Chile and Peru. As a result, while the company was growing its brand internationally, it was also building up a large mountain of debt.

Nonetheless, the company’s value grew rapidly, reaching £5 billion at its peak in early 2007 as it attracted the attention of numerous institutions, pension funds and private investors, until concerns over its level of debt began to weigh heavily on the share price. 

In July 2009, Yell replaced Chairman Bob Scott with Bob Wigley, and Wigley started to make a series of changes. In November 2009, he set about raising £660 million of finance from institutional and private shareholders to strengthen the company balance sheet. Shortly after the fund-raising, the company had a market cap of nearly £1 billion and a share price of 42p per share.

During 2010, CEO John Condron and CFO John Davis announced their intention to stand down from the Board of Directors, and Bob Wigley (also Chairman of Stonehaven Search, a specialist executive recruitment agency) began a search for their replacements.

In October 2010 Wigley asked Joe Walsh, President and Chief Executive of Yellowbook, to seek a buyer for the American part of the business which generated roughly half of the Group’s revenues.

It was at this time, however, that there was a sea-change in the company’s priorities and a series of actions which, in retrospect, it is clear were taken to the detriment of its shareholders.

In November 2010, Wigley appointed Tony Bates as CFO; and in December 2010 selected Mike Pocock, as Group Chief Executive, with the latter set to take office from 1 January 2011. Wigley strongly promoted his ‘new team’.

Wigley did not however tell shareholders that Pocock was facing court proceedings in the USA for the receipt of $8.5 million, 2% of the proceeds from the sale of Polaroid to a convicted Ponzi scheme fraudster, Tom Petters. There, it was alleged that, as CEO of Polaroid, Pocock had ignored numerous ‘red flag’ warning signals in the course of the Polaroid sale which should have led him to question the legitimacy of the $426 million transaction.

Indeed, Pocock had a history of overseeing ‘restructurings’ and company sales like the Polaroid one, in which he reportedly paid scant regard to shareholder rights. His tenure at Cisco-Linksys was also reported to have ended unhappily and was followed by an unexplained two-year gap prior to being given the job at Yell by Bob Wigley.

Yet, on Pocock’s appointment, Wigley informed shareholders “We very much welcome Mike. He brings impressive leadership skills and experience from his considerable success in a range of businesses, which made him stand out from a strong candidate list and suit him ideally to the challenges and opportunities of Yell.”

Shareholders were led to believe that Pocock had exactly the right pedigree to help put Yell on the right track. The truth though appears to be that Pocock was taken on by Wigley to radically ‘restructure’ Yell, regardless of the impact on its shareholders. Within a few months, Pocock recruited Bob Gregerson and Mark Payne who had been with him at Polaroid. The trio had often also worked together on major corporate ‘restructuring’ exercises but, again, shareholders were not alerted to any of this.

In December 2010, Joe Walsh advised Wigley that a consortium was willing to offer at least $1.6 billion for the American arm of the business, a figure amounting to about 3 times Yell’s prevailing market cap, for what was in effect only around half the company. Pocock and the Board rejected the offer, and it was never announced to the market.

Another offer of ‘up to $1.9 billion’ followed but, again, it was rejected and not announced to the market. Pocock and his new team then inexplicably told Joe Walsh in early January 2011 to cease looking for a buyer for the US arm of the business. The Board did not inform shareholders of this decision.

The news that substantial offers had been received for the American part of the business was materially significant and could have increased the share price considerably had it been announced. The failure to announce the news meant that shareholders were instead forced to endure relentless downward pressure on the share price, something which seemed completely at odds with the perception that had been created by the company.

In the 2012 Annual report, issued to shareholders on 26 June 2012, Yell announced a “one-off” impairment charge against goodwill and intangibles of £1.8 billion which left the company with a Net Asset Value of about £300 million, compared to £1.5 billion the previous year.

Wigley shrugged off this significant write-down in the company’s asset values, declaring -   “The Group also concluded during the reporting period that it should take an impairment charge against the balance sheet carrying value of some of its businesses and so a charge of £1,802m before tax was recorded. This non-cash accounting adjustment has little effect on the businesses and simply recognises changes in current and non-current intangible assets, such as changes in goodwill and brand valuations on previous acquisitions preceding my arrival."

It was a strange comment for the Chairman of Yell to make, given that the value of goodwill and intangibles had remained virtually unchanged for nearly 3 years while Wigley was Chairman. It should also be noted that Wigley was a Fellow of the Institute of Chartered Accountants and so would have been aware of the impact of writing down asset values to such an extent.

In the same 2012 report, however, Wigley signalled the Board’s optimism and commitment to “maximising shareholder value” stating that “the Board is very focused on the fact that shareholders have not seen a positive return since Yell embarked on its transformation. The share price has been affected by the risks associated with our capital structure and the continued decline of our directories business and it is still too early for the impact of our new strategy to offset these issues. The Board remains committed to maximising value for shareholders, many of whom supported the rights issue three years ago, while protecting the interests of all stakeholders as we focus on transforming the business and putting in place a new capital structure."

Notably, the ‘rights issue’ had been at 42p per share and, when the Annual Report was produced in May 2012, the share price had fallen to 3p. The comments from Wigley strongly suggested that the Board was looking for shareholders to receive an appreciable return from that point forward.

Two months later, however, the tone of the company’s communications to shareholders had changed dramatically. The message became one of “protecting shareholder interests to the fullest extent possible” and, two months further down the line in September 2012, the Board announced that some of the restructuring options under consideration might give the shares ‘little or no value’. hSG firmly believes that the Lenders had, at the time of that announcement, already effectively taken control of the company and were set on a course that would lead to the complete elimination of shareholders.  

Following the September 2012 announcement, the Directors of hibu elected to default on the company’s debt repayments in spite of the fact that there were sufficient funds available to continue paying; wrote down the value of goodwill and intangibles by a further £2 billion in March 2013 (not announced until July 2013); transformed the balance sheet from a positive Net Asset Value of £300 million to Net Liabilities of £1.5 billion; and repeatedly took steps to prevent shareholders from being able to question any of the figures on which the restructuring decisions were based.

The figures hibu provided were not explained to shareholders nor agreed with the company’s auditors PwC. However, they directly resulted in shareholders losing the entire value of their investments.

At the same time as shareholders were losing everything, the Directors chose to increase their own remuneration packages by an average of 70% in one year.  

It is our contention that the fraudulent actions of the Directors resulted in a dramatic change in the trading status of Yell, a hugely cash-generative company, in a period of less than a year, turning it from a company which the CFO had said was worth £300 million in May 2012 (after already writing down the asset values by £1.8 billion) to one which was essentially bankrupt and owing £1.5 billion.

EITHER the Board had seriously misled its shareholders for several years, including those that had invested in the £660 million fund-raising in November 2009 at 42p per share, by massively over-stating the value of its assets and failing to carry out the required annual review of asset values correctly;

OR (something which hSG believes is far more likely) - the Board of Directors deliberately chose to write down the asset values by a total of about £3.6 billion in only 12 months with the express intention of making the company appear to be worthless. Taken in conjunction with the puzzling decision to default on debt payments, the directors had created the conditions whereby hibu plc could be placed into administration and the ownership of the company transferred from the Shareholders to the Lenders.

Regardless of which of these two scenarios applies, this is evidence of SERIOUS FRAUD.

Shareholders  were  also denied the right to a meeting to discuss future options, when the Net Asset Value of the company fell to below 50% of the value of the paid up share capital – an event that forensic accountants, Smith & Williamson, confirmed must have happened in March 2013 or before. We believe this to be a breach of Section 656 of the Companies Act (2006).

This was the first in a series of steps the Directors took which hSG contends were intended to prevent the financial figures being scrutinised or their decisions challenged.

Unable to get their financial accounts for the year to 31 March 2013 agreed by the auditors by the date on which the AGM would normally have been held (25 July 2013), the Board instead suspended trading in the shares (declaring them worthless) and moved the accounting reference date on by 6 months to 30 September 2013.

The Directors then put only the parent company, hibu plc, into administration on 27 November 2013, leaving the subsidiaries intact. This step eliminated the need to provide the market with ‘audited’ final accounts for hibu plc, and gave the Directors an excuse not to attend an EGM that had been convened for 4 December 2013, thereby avoiding their actions being questioned.

Finally, to ensure that their choice of restructuring went through largely uncontested in February 2014, they repeatedly announced that the Co-ordinating Committee of Lenders (“CoCom”) were “unanimous” in their choice of action, even though one of the leading members (RBS) had sold their substantial holding of debt in October/November 2012 and resigned from the CoCom unannounced, and another (GE Capital) had left the CoCom too, also unannounced.