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Is Allied Minds plc Neil Woodford’s biggest mistake or a huge opportunity?

Yesterday shares in Allied Minds (LSE: ALM) lost a quarter of their value after the company announced a $147m writedown on the value of seven businesses. 

Allied Minds, which is a favourite of star fund manager Neil Woodford, made this announcement after a review by its interim CEO Jill Smith. The company believes that by pulling out of these seven early-stage businesses today, it can re-consolidate its efforts and focus on other firms that are more likely to yield substantial results. 

However, critics believe Allied has decided to take this course of action to make life easier for management. One set of City analysts noted last week that by writing off the value of some struggling businesses, it would be easier for management to improve the value of the remaining portfolio from a lower base. 

Timing is suspect 

Not only are the motives of Allied’s decision to write down the value of its assets questionable, but the timing of the announcement is also suspect. 

Indeed, only three months ago in December, the company tapped investors for £64m in fresh equity to invest in its businesses and technology. Neil Woodford contributed £15m as part of this capital raise. The $147m (£120m) writedown means investors have seen all of their additional investment obliterated. 

And it is possible management could have seen this coming. Jill Smith became Allied’s interim chief executive last month after co-founder Chris Silva stepped away from the business. The company has been criticised in the past by the activist New York hedge fund Kerrisdale Capital for not actually creating any value for investors since it was formed in 2006. 

Time to sell? 

Neil Woodford, who owns around 30% of Allied Minds, remains optimistic about the company’s future despite yesterday’s slump. But personally, I’m not convinced. 

Private equity is a risky business, and for every billion-pound idea, there are thousands of failures. So it makes sense for a venture capital company to have as many opportunities as possible available to it, which is the opposite of the course Allied Minds has decided to take.

What’s more, Kerrisdale Capital has a valid argument about Allied’s track record of success. In the past decade, the company has not sold any portfolio companies and has not taken a single one public. Further, of the five companies Allied formed in 2006, four failed completely, and the fifth remains stuck in R&D mode. 

Current operating figures are no better. Even though the company has agreements with 34 federal research institutions, for the half-year to June 2016, it reported revenues of just £1.3m and a net loss of $52.2m.

So overall, even though Neil Woodford remains a supporter of Allied, the company’s poor track record and lack of progress put me off the business.

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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. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.