If anyone needs a reminder of Sir Isaac Newton’s maxim ‘what goes up, must come down’, they’d do well to look at Quindell’s shares. They’re currently trading at 56.68p on London’s AIM market, having lost 91% of their value since April 7th.
The firm that promised to revolutionise car insurance with its black box technology has had its reputation severely dented in series of spectacular smashes, culminating in the ousting of its founder Rob Terry this morning.
Terry and his long time board ally Steve Scott have left with immediate effect, while finance chief Laurence Moorse will step down at the firm’s 2015 AGM and leave the year after. Terry gets the consolation prize of being a paid consultant, while independent director Dave Currie steps in as interim chairman.
So what happened? Why did Terry et al get the chop?
1. Batman's dossier
Quindell’s woes began in April 22nd when mysterious American blog Gotham City Research, which earlier this year took down Spanish wifi provider Gowex, published a 74-page dossier claiming the company was 90% overvalued and casting aspersions on the validity of its profits. Shares lost half their value within a matter of weeks.
The firm denied any wrongdoing and later won a libel action when Batman, or whoever is actually behind Gotham City Research, failed to turn up and defend its statement in a British court, but this wasn’t enough to soothe investors.
On its own, of course, this was not enough for Terry to go. He maintained his public belief in the future prospects of the firm, despite the sliding value of its stock.
2. A strange share agreement
On November 5th, the firm announced that Terry, Scott and Moorse were buying 1.5 million shares in Quindell, using their current stock as security for a loan from American firm Equities First Holdings (EFH). This, however, turned out not to be the whole story.
After some aggressive sniffing by investors, the board was forced to ‘clarify’ the situation on November 10th. Apparently what the trio had actually done was give EFH 10.4 million shares, approximately 2.3% of the business, as security for a loan worth £8.8m. Which is basically the same thing, except that it really isn’t.
Despite Terry’s statement to the markets that the loan was taken out so that they could buy more shares at the current value (i.e. with the belief that the value would later increase), and despite no evidence to undermine that statement, investors had new cause to query what they were being told.
Quindell’s reputation and shares slipped further, falling from 96p to 68.5p by the end of the week.
3. An untimely resignation
The shares didn’t really hit the fan until November 17th, when Quindell announced one of its two brokers, Canaccord, had resigned on October 21st. Brokers resigning isn’t a good thing for confidence in a listed company at the best of times, and it didn’t help that the announcement came four days before convention dictates that firms should publically announce them.
Although the reasons for the resignation weren’t given, it was the final straw. Quindell got rid of its founder and his allies within hours. Terry said he’d entered into the share agreement with the ‘best of intentions’, but that he was ‘clearly disappointed and sorry that events turned out as they did’.
No kidding. Terry also said that, given what had happened to Quindell’s share price, he would not buy back the 8.8 million shares he gave EFH as security, ‘as it would no longer make economic sense’. It looks like his belief in the company’s financial future isn’t as secure as it once was.
Quindell’s shares have fluctuated heavily this morning since the announcement, ending the morning down 4.94% on 54.76p. Given the uncertainty caused by recent events, this is no surprise. However, Terry had to go after the brokers resigned. Investors just can’t abide the kind of hard-to-explain surprises with which he is now associated. For Quindell to begin restoring its reputation, it needed to start at the top.