Invox has recently sold what was once its core business. This is an admission of management failure.
When a company sells part of its business it always leaves me uneasy. If that business is no good, why did they have it in the first place? But if it's good enough that someone else is happy to pay money for it, why not keep it and make the most of it?
I recently wrote about the lessons investors could learn from the Invox
(LSE: INX)
debacle. Well, Invox is in my sights again, because it's selling what used to be its core business, called Home Gaming. In a complicated deal, another listed company, DM
(LSE: DMP)
is picking it up.
DM will make an upfront payment of £1 million to Invox. Unfortunately, the payment won't be in cash, but as 7,547,170 newly issued DM shares. This will make Invox a 5.7% shareholder in DM. The problem is that DM is an extremely closely held company -- Adrian Williams, the Chairman, will own some 88% after the new issue -- and any other shareholder will have almost no say in the running of the company. It also means that there is virtually no market for the shares; Invox would have difficulty selling its shares even if it hadn't agreed to an 18 month lock-in period.
Invox may also receive a further £1 million from DM. However, this will be dependent on home gaming being profitable. At the moment, it is loss making. This £1 million will be paid in four tranches of £250,000 every year from the 31st of December 2007. DM will have the option of paying each tranche in DM shares rather than in cash.
The deal is a bad one, in my opinion, and amounts to an admission by Invox's management that they don't know what to do with Home Gaming. It also suggests that any previous success was a fluke. I think they should have tried to learn lessons from their past mistakes and turn the Home Gaming business around, or at least sell it for cash.
What's left of Invox is Brightview, the ISP with the MadAsAFish brand name. "We can now focus entirely on our Broadband business, which we believe offers substantial opportunities for new growth," says Chairman, Stephen Hargrave.
Broadband is a tough business in which size and the ability to offer fixed-line-broadband-mobile packages are what matter. It's tough managements that make tough businesses succeed.
Eventually, one of the large companies may want to acquire Brightview's customer base. Earlier this year BSkyB
(LSE: BSY)
bought Easynet, while Plusnet
(LSE: PNT)
said this morning that it had entered takeover talks with an unnamed party -- newspaper reports have suggested that BT
(LSE: BT.A)
is the suitor. So Invox may look interesting as a takeover play.
Can we guess a price? The 50,000 customers Invox says it will have by Christmas may be worth £6 million, assuming a value of £120 each. We then have to subtract Invox's net debt of £3.5 million. This values Invox somewhere under £2.5 million or 11.6p/share as opposed to today's 19p.
Not one for me.
