ScotPac and CML merger off the table

The Scottish Pacific Group Ltd (ScotPac) deal sought to acquire 100 per cent of the issued share capital of CML – the parent company of Cashflow Finance – for a total cash consideration of $0.60 per share, comprising $0.57 cash per share and permitting a fully franked dividend of $0.03 per share to be paid prior to completion. 

It had looked set to progress after CML announced last month that it was to terminate the rival agreement with COG after suggesting that they had “materially breached” the agreement by acquiring a relevant interest in 17.36 per cent of the issued voting shares in CML Group.

However, the two groups have now terminated their scheme of arrangement by mutual agreement.

CML has said it will continue to execute its strategy as an independent company. 

ScotPac to pay $1m in costs

The termination came after ScotPac raised concerns that “events may have occurred which constituted a material adverse effect on CML’s business” and alleged breaches of the restrictions in the scheme of implementation deed on the conduct of CML’s business. 

The CML board said it does not believe it had breached the terms of agreement or been subject to any event that constituted a material adverse effect on CML’s business for the purposes of the deal. 

Speaking to The Adviser, CML CEO Daniel Riley said the “circumstances had substantially changed” in the two months since the agreement was signed, with “COVID-19 trade conditions influencing everyone’s thinking”. He added that this had meant that ScotPac had turned into “an unwilling bidder looking for angles, contractually, to discontinue with the transaction”.

CML group suspended trading on the ASX on 24 April 2020 to “facilitate good faith discussions, correspondence and consultation” with ScotPac in relation to the issues raised in the notices. 

However, the group said that “despite their best efforts, the parties have been unable to agree a position on the matters raised in the notices or a path forward for implementation of the scheme”.

As such, the board determined that it was in the best interests of the company and its shareholders to terminate the deal by mutual agreement, releasing both parties from their obligations and without any admission of liability. 

ScotPac will now pay $1 million in recognition of the costs incurred by CML in pursuing the transaction and has also agreed that it will not acquire (or seek to acquire) any CML securities or equivalent rights or other derivative instrument – or otherwise seek to influence or control the management or policies of CML – for a 12-month period (unless it receives consent to do so).

Chairman Greg Riley said the group had made a “difficult but pragmatic decision in the best interests of the company and its shareholders”.

“We are pleased to have avoided further expense and to have amicably resolved all matters and claims at issue between CML and ScotPac,” he said.

“We believe CML has a strong future as an independent company.” 

Likewise, a ScotPac spokesperson told The Adviser: “CML and ScotPac have mutually agreed to terminate the deed that would have seen ScotPac acquire all CML shares. 

Business update

Looking at the business, CEO Daniel Riley added that CML Group continued to see high invoice volumes.

While invoice figures were up 10 per cent for the 10 months to April compared with the prior comparative period, this was largely due to its acquisition of Classic Funding Group last year. When excluding the acquisition, volumes were down 2.4 per cent over the same period, which the group has attributed to the COVID-19 pandemic “adversely affecting volumes of existing clients”.

However, Mr Riley said that while there has been “a general reduction in volume or trading” from client, CML did not expect to lose clients and “expect[s] volumes to return progressively, as business conditions improve as travel restrictions ease and businesses can return to full-time capacity”.

“Throughout this period of corporate activity, we have kept our usual focus on the ongoing performance of CML Group and its businesses, especially given the onset of the impact of COVID-19 on the economy,” Mr Riley said. 

“We are very pleased with the way in which the CML business has adapted to this unprecedented and testing economic period and remain confident that the business is insulated against any major adverse impacts going forward.”

He added: “The company is uniquely positioned to continue to grow when the economy returns to normal levels and can quickly ramp up facilities to meet demand as it accelerates.” 

Looking forward, Mr Riley told The Adviser that brokers should be assured that CML Group is “remaining independent and its services and credit appetite is unchanged”.

“We are most certainly eager to continue to build the business and work with our broker partners,” he concluded.

[Related: Scottish Pacific looks to buy CML Group]