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Slater and Gordon shares crash to 11c

Thursday, 23 Mar 2017 13:45:22 | Emily Stewart

Slater and Gordon says its new lenders want to keep the company afloat. (Supplied)

Slater and Gordon shareholders are losing hope of recovering money from their investments in the struggling law firm, with many small investors facing losses in the hundreds of thousands of dollars.

Kim and Nick, who do not want their full names to be used, have lost a total of almost $500,000 investing in Slater and Gordon.

Kim alone lost around $450,000.

"I made the mistake of putting all my money into that share - so I've learnt a few lessons along the way," Kim said.

"It's been quite hard, emotionally and financially. But you know, I don't hold any grudges, I'm trying to get myself out of this mess."

Kim was forced to sell a house and car to cover his losses. He has joined a class action against the company but, like other investors, is not hopeful of recovering his money.

"I just can't see how it will be all rosy at the end, it's gone too far and it's probably too late now," Kim said.

Kim and Nick met via the Hot Copper share investing chat site, and subsequently met face-to-face at Slater and Gordon's annual general meeting.

The two have been supporting each other as they face the massive loss on their investments in the law firm.

'Problematic' Quindell acquisition a 'mystery'

Slater and Gordon was the first law firm in the world to be listed on the stock exchange, but the decline of the one-time market darling has been spectacular and painful for investors, with $2.8 billion wiped off its share price.

Shares hit a high of almost $8 in 2015, but has since crashed to 11 cents. Most analysts have dropped the stock, and Morningstar has valued it at just 1 cent.

"I can't think of a more sudden fall," said Geoff Bowd, director of the Australian Shareholders Association.

"Of course there's anger, it's been a disaster for our retail shareholders."

The firm's troubles began with a $1.3 billion purchase of the professional services arm of UK firm Quindell in 2015. However, within months, Quindell was subject to a fraud investigation and forced to restate earlier accounts.

To make matters worse, regulation around claims changed in the UK, meaning less revenue was coming through the door, leading Slater to book a $1 billion impairment on the acquisition.

"Slater and Gordon was a very successful law firm in Australia, but their capacity to take that success and acquire another firm in another part of the world was always going to be problematic," said Dr Vivek Chaudhri from Melbourne Business School.

"The question is why they thought they could turn it around in the first place - why Slaters thought they would be in a position to do something with those assets in a way the previous owners couldn't do - is a mystery."

New lenders hopeful to keep Slater and Gordon afloat

Last month, the firm reported a half-year net loss of $425 million, and its debts are sitting around $740 million.

The company has been working to restructure its debt for months, but last week, its major lenders sold off their investment at a massive loss to secondary lenders.

But, Slater and Gordon has told the ASX its new lenders want to keep the company afloat.

Slater and Gordon on life support

After writing off nearly $900 million in 'goodwill', Slater and Gordon is relying on the goodwill of its lenders for its survival.

"It's extremely difficult, because if you're generating very low rates of return on your equity and your assets it suggests your assets are overvalued on the balance sheet and that makes banks very wary," said fund manager Roger Montgomery.

Montgomery Investment Management shorted the stock, reaping profits off the fall in Slater's share price.

The ABC understands the cashflow problem has become so bad that some barristers are asking for up-front payments before they will do any more work for the firm.

Slater and Gordon said in a statement: "To our knowledge, not a single member of the bar has declined to accept a brief from a client of Slater and Gordon during this period for any reason related to any concern about the company’s financial stability."

Meanwhile, its main competitor Maurice Blackburn has launched a class action against Slater and Gordon, claiming the company did not inform investors about its true financial position early enough.

That was in relation to a reaffirmation of its earnings guidance in 2015, before it backflipped less than two weeks later.

The Australian Securities and Investments Commission is also investigating.

"At the end of the day, the board's accountable and probably in different circumstances we'd say the chairman should resign," said Mr Bowd.

"At this point in time it's in the best interests of shareholders that current management stay and lead the recovery."

AustraliaPlus


 

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