Published September 22, 2008

1st Software shareholders deserve some answers and recourse

By LYNETTE KHOO
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TWO years of waiting has come to nought as shareholders of 1st Software await the fate of having their shares delisted. In a matter of weeks, 1st Software shares, which have been suspended since December 2006, will be taken off the mainboard.

In an unusual situation, this delisting does not come with an exit offer for shareholders to cash out as required by Singapore Exchange (SGX) listing rules; this 'cash company' has little cash left to distribute to its shareholders.

One wonders how a company with a net cash position of $2.5 million at end-2007 could end up with only $30,000 to $40,000 left in its kitty, especially since a $2 million convertible loan was obtained in April to fund the proposed acquisition of Teambuild Corporation.

Let's recall what happened two years ago. 1st Software became a shell company after selling its core desktop publishing solution business in May 2006. It made two unsuccessful attempts at reverse takeovers, as cash companies need to obtain a core business in order to stave off delisting. This year in March, 1st Software finally struck an RTO deal to acquire construction and development firm Teambuild.

On the face of it, this deal seemed to fulfil all mainboard requirements, given Teambuild's good profit track record.

Just as all seemed well and good, this final attempt went under when 1st Software failed to submit a complete circular to SGX by the deadline of June 26. SGX decided not to extend the deadline a second time. This leaves shareholders in an unenviable position as they cannot sway the delisting, nor be given a reasonable exit alternative. Their investment will remain locked in the shares thereafter, without a public market to cash out.

This raises the question whether such companies should be allowed to delist without an exit offer in the first place. Also: what safeguards are there to make sure that cash companies preserve their cash to either acquire businesses to retain their listing status, or distribute the cash to shareholders in an exit offer?

Moreover, there was no word from the company on why it could not complete the Teambuild deal. Queries to the former management that led the deal went unanswered. Investors could only draw vague answers from 1st Software's notice of delisting saying that it could not get a deadline extension from SGX to complete the deal. This gives little clue to what really constituted the last straw.

Contrast this lack of detail surrounding a delisting with the efforts made to disclose public information at the point of listing with much fanfare, and the disparity is obvious.

Interestingly, the management and board of directors at 1st Software resigned two months after the notice of delisting to make way for newly appointed executive director Dali Sardar, who owns 15-16 per cent of 1st Software, and new independent director David Tan, who is CFO at another SGX-listed firm Sino-Environment. Given the futile efforts to inject a new business into 1st Software, a renewal in the management and board of directors may be good. But wouldn't this come too late at a time when the fate of delisting is sealed? And another point in question is whether they should have left without providing adequate reasons for the lapse in the Teambuild deal.

Surely, the failure of the transaction requires some explanation; the shareholders who will not recover their investment at this point deserve some answers. It would also be good to disclose how the cash reserves have been used - this being a topic that the management had avoided at previous shareholders' meetings.

The single largest shareholder Mr Sardar is now contemplating a recovery plan for shareholders. He told BT he is looking to relist 1st Software through an introductory IPO. 'Doing nothing is not an option,' he said, as an IPO would at least provide some hope of recovery for shareholders.

But how this plan will work out with the small sum left in the kitty is still a question mark, given the various costs involved in a relisting effort, ranging from IPO manager fees, listing fees and other professional fees. A Catalist listing would potentially mean paying the sponsor by way of shares - a payment scheme that has been debated over its potential conflict of interest.

As it stands, the delisting of 1st Software without an exit offer threatens to leave shareholders out on a limb. It would be good if the company and the regulators worked out some issues to offer some recourse to the shareholders.