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Quindell PLC Is Selling The Family Jewels In A Bid To Survive

Quindell (LSE:QPP) has been charging higher over the past week as acquisition rumours have surrounded the company. Quindell finally acknowledged these rumours after the market closed on Thursday, stating that the company had:

“… entered into exclusivity arrangements in respect of the possible disposal of an operating division of the Group. The Company notes the speculation concerning the identity of the third party and can confirm that Slater & Gordon Limited (“S&G”) is the party referred to in previous announcements.”

Slater & Gordon is an Australian law firm that also operates in the UK.

It has since been revealed that Quindell has entered negotiations to sell its legal services division, which was accounted for sales of £180m during the first half of 2014 — about half of Quindell’s total turnover. The division’s earnings before interest, taxation, depreciation and amortisation were £101m in the same period — around 65% of group EBITDA. 

Selling the family jewels

At first glance, it would appear as if Quindell is in discussions to offload roughly half of its business, divesting assets to unlock value and much needed cash for shareholders. However, an announcement from Slater & Gordon, released overnight gives a different view on the matter.

Slater & Gordon issued the following statement during trading on the Australian Stock Exchange: 

“SGH confirms that, consistent with our previously communicated UK growth strategy, SGH has entered into exclusivity arrangements with Quindell in respect of discussions relating to a possible disposal of an operating division of the Quindell Group. These discussions remain preliminary and incomplete.”

“As part of these arrangements, SGH is completing due diligence on a portfolio of Quindell personal injury litigation case file rights to take a transfer of files over the coming months. Contrary to press speculation today, SGH has not submitted any offer or proposal beyond the file transfer transaction. The files transfer transaction is not material.”

So it looks as if Slater & Gordon is cherry picking the personal injury litigation cases it wants to take from Quindell. Moreover, there’s little in the announcement from Slater & Gordon to suggest that the Australian company is considering an offer for the whole of Quindell’s legal services division. 

Desperate for cash

All in all, it looks as if Quindell is trying to offload its most attractive legal cases to try and raise some much needed cash. 

Or, in other words, Quindell’s management is auctioning off the family jewels — a strategy that signals desperation. Indeed, companies that sell off their most lucrative assets are usually on their last legs and desperate to raise cash.

For this reason, it's reasonable to assume that Quindell is in trouble and it could be time to look elsewhere for a better deal. There are plenty to be found, you just need to know where to look! 

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Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.