Thalassa (THAL) – Chairman takes on two sets of shareholders

Thalassa (THAL) – Chairman takes on two sets of shareholders

To be in a state of hostility versus one set of shareholders might be regarded as a misfortune. But to be in a state of hostility versus two sets of shareholders – how should we interpret this? Bystanders to the saga of strange events at Thalassa (THAL) are asking this question (latest share price 81.5p, market cap £15 million).

I previously discussed how the Thalassa Chairman, exploiting the flexibility of company rules in the British Virgin Islands, had made shares in his company almost worthless, from a voting point of view, to prospective buyers in the market. No reason for this radical change was given. We were left to assume that it was done to assist the concentration of voting power in his own hands.

The plot has thickened over the past month, as the Chairman has jostled with an additional set of shareholders. These are the unfortunate holders of Local Shopping Reit (LSR) (latest share price 28p, market cap £23 million), in which Thalassa has a 25.5% stake.

LSR has been attempting to dispose of its assets and wind up since 2013.

In 2016, Thalassa acquired shares in LSR. It was soon making various strategic proposals to LSR, and Chairman Soukup tried to eject two existing LSR directors and get himself on the LSR Board instead.

His attempt failed. LSR replied that Mr Soukup and Thalassa:

“…are attempting to gain control of LSR via the back door. To what purpose remains unclear, but the Board do not believe it is likely to be in the interests of LSR’s shareholders, other than Thalassa.”

While I’m in no position to defend every action of the LSR Board, I can’t see what reasonable justification Thalassa might have had for getting involved in the first place.

It’s a world away from the sort of thing that we would expect from a positive investment programme. A positive investment programme finds good companies and good management teams to invest in. Thalassa, on the other hand, singled out a fairly average business and picked a fight with it.

Some hedge funds do make a good living out of shareholder activism – but they typically do this by creating economic value, rather than merely redistributing it to themselves.

Thalassa flexes its voting power

In December, Thalassa blocked LSR’s special resolution to finally wind up and return cash to shareholders. This resolution required 75% of votes in favour, but Thalassa has “negative control” and can block such a resolution via its minority shareholding.

There is no doubt that non-Thalassa shareholders were in favour of the resolution:

Excluding the votes cast by Thalassa, 99.98% of the balance of the votes received were in favour of the Resolution.

Why did Thalassa vote against it? Do feel free to read the RNS it issued. It’s heavy in prose, but leaves the reader none the wiser.

LSR shareholders are now in a state of limbo while their Board tries to figure out what to do.

Chairman Soukup seems to have achieved a remarkable feat: a power grab against his own fellow shareholders in Thalassa and, shortly thereafter, against Thalassa’s fellow shareholders in LSR. He did this through the successful exploitation of the corporate governance rules in each jurisdiction.

No doubt he has a very clever plan for how LSR’s problem will be resolved. Perhaps it has something to do with Thalassa’s recent application for a main market listing?

Some have speculated that Thalassa will offer its own shares to LSR shareholders, to buy them out. One imagines that this would be negative for the pricing of Thalassa shares – a favourable outcome for the Chairman, as Thalassa continues to buy back those shares with cash at a discount and he consolidates control.

In the absence of any explanation for the strange events at Thalassa, let alone a benign one, we are left to conclude that it is an example of corporate governance gone wrong and that any companies with which the Chairman is involved as a Director should be vigorously avoided by investors. Were a benign explanation to be revealed, I would be only too glad to change my tune.

In the meanwhile, I unfortunately cannot offer any consolation to LSR shareholders, as I don’t know what devices the LSR Board might find to overcome the problem posed by Thalassa’s Chairman. He has successfully wrested power both from them and from anyone who might buy THAL shares, and I suspect there is little that can be done about it.

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