Mr. Jay Lubinsky of Anson Advisors reports
ANSON ADVISORS INC. ISSUES STATEMENT REGARDING ACASTA ENTERPRISES INC.
Anson Advisors Inc. has issued a statement regarding Acasta Enterprises Inc.
Anson has serious concerns about the news release issued by Acasta Enterprises Inc. on Friday, Feb. 8, 2019, disclosing that Acasta has agreed to convert high-yield, secured indebtedness held by WFI Inc., a company controlled by Charles Wachsberg and Richard Wachsberg, directors and co-chief executive officers of Acasta, into Class B shares of Acasta at a significant discount to the current market price. The Wachsbergs were appointed to the board and as co-CEOs on Dec. 21, 2018, upon the resignation of Acasta's independent directors and CEO.
Anson's concerns include the following:
The proposed transaction is between related parties and would be at a price 20 per cent below the current market price and nearly 50 per cent below fair value of the Class B shares imputed by the sale of Apollo Health and Beauty Care Inc. that Acasta was considering before the board of directors was replaced last December. Had the Apollo sale proceeded on the terms proposed, there would have been sufficient cash resources to repay all of Acasta's debt in full and provide value to equity holders of at least $1.48 per share. Anson believes that the intent and effect of the debt conversion transaction proposed by the Wachsbergs are to transfer value from Acasta and its minority shareholders to themselves.
- The news release asserts that the proposed transaction accords with Acasta's plan to urgently reduce its outstanding indebtedness. However, the proposed transaction deals with only approximately $4.8-million of Acasta's $73-million of total indebtedness, of which approximately $62-million is owed to a bank and the balance is owed to the Wachsbergs. Anson believes that there are other transactions available to Acasta that would be either less dilutive or sufficient to repay all of Acasta's indebtedness in full.
Anson has previously expressed its willingness to provide financing to Acasta but has not been contacted by Acasta's board of directors since it was reconstituted. Anson expects that other shareholders would also be so inclined. Anson believes that third party financing is available on terms that would be more favourable to Acasta than those negotiated by Acasta with the Wachsberg's. Acasta's news release provides insufficient disclosure to justify the basis on which the board of directors determined that the proposed transaction is in the best interests of Acasta, having regard to available alternatives and the related party nature of the transaction. Notably, there is no reference to the Acasta board having received independent financial advice as to the fairness of the transaction to minority shareholders from a financial point of view.
- Acasta's news release asserts that the issuance of the Class B shares to WFI will not materially affect control of Acasta. This is incorrect. The proposed transaction will increase the Waschbergs' holdings from 36 per cent to 41.8 per cent, giving them effective control in light of historical turnout at shareholder meetings of Acasta. Anson believes that this is the motivation behind the proposed transaction.
- All of the independent directors elected by shareholders at the last annual general meeting were replaced by the Wachsbergs and individuals appointed by them on Dec. 21, 2018. This occurred without any prior consultation with shareholders and without any disclosure being provided to shareholders about the qualifications and experience of those individuals and, in the case of individuals other than the Wachsbergs, their independence or connections to the Wachbergs. These individuals were the ones who approved the proposed transaction.
In light of what has been disclosed in this news release, Anson has requested that the Toronto Stock Exchange exercise its direction to require that Acasta obtain disinterested shareholder approval as a condition to proceeding with the proposed transaction.
About Anson Funds
Anson Funds is a privately held alternative asset management company, founded in 2007 with offices in Dallas and Toronto. As the manager or co-manager of various funds, Anson has ownership or control over 12,153,780 Class B shares of Acasta Enterprises, representing approximately 18.7 per cent of its outstanding Class B shares as of the date hereof.
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