Appraisal questions Charlie's valuation

Marc Ellis, left, and Stefan Lepionka will benefit from what is effectively a reverse takeover. Picture / Kenny Rodger

Listed shell company Spectrum Resources' plan to acquire juice company Charlie's is a risky move, an independent appraisal of the deal suggests.

Spectrum plans to buy Charlie's - run by former All Black Marc Ellis and his business partner, Stefan Lepionka - for $11.66 million by issuing 145.75 million shares at 8c each to Charlie's shareholders, including Ellis and Lepionka.

Independent appraisers Horwath Porter Wigglesworth said that based on Charlie's 2006 forecast earnings at an earnings before interest and tax multiple of 7.4 times, the purchase price would be $7.5 million.

The fairness of the actual price was "directly" dependent on Charlie's achieving its 2007 forecasts for $1 million profit on $16.2 million revenue. Charlie's lost $431,000 in the year to March 31.

"Charlie's has expanded rapidly and is undercapitalised and subject to liquidity pressures. Further, it is in the process of introducing a significantly revised product distribution system, the results of which have yet to be proven," Horwath says.

Spectrum shareholders will vote on the plan at a July 13 meeting at the Tamaki Yacht Club.

The deal, effectively a reverse takeover, will see all $1.75 million of Spectrum's funds used to settle Charlie's debts and improve trading margins. Spectrum's name would be changed to Charlie's and Charlie's directors, including Ellis, appointed to the board.

Spectrum proposes a share scheme for directors and Charlie's 50 staff, representing up to 15 per cent of issued shares.

It would be funded by five-year interest-free loans. Similar arrangements at insurer and fund manager Tower, launched in 1999, sparked intense shareholder controversy, and Tower's scheme was wound up in 2003.

Charlie's directors and employees could also be given 12.1 million options that could be exercised at 10c each for four years from when they are granted.

Charlie's shareholders will hold 82.62 per cent of the company after the deal's completion, with Spectrum's 2700-odd existing shareholders, including Dorchester Finance and Michael Stiassny, left with the remainder.

Spectrum also hopes to get a private placement of 30 million new 10c shares away to raise $3 million to develop Charlie's distribution.

Horwath said the deal, backed by Spectrum's board, could boost Spectrum's share value if Charlie's business prospered in a "competitive market".

Alternatively, shareholders could reject the deal and ask directors to wind up Spectrum, returning to them capital of up to 5.2c a share.

Listed on the stock exchange since 1983, Spectrum started in mineral exploration before moving into ecommerce and IT. It sold software development business Kinetiq in May.