Tuesday, September 25, 2007

AbCap - Absolutely Confused

I am very confused about the whole Absolute Capital Management situation. Before their management start reaching for their lawyers phone number, I am not accusing anybody of anything.

The news that Florian Homm sold his shares in Absolute to Andres Rialas, a director, is just mystifying to me. AbCap shares were trading at 400p per share before Homm resigned and now he sells 10mn for 35.2p. Rialas has doubled his money on them in less than a few days, does this sound like the work of Homm the 'Financial Genius', I don't think so.

There seems to have been a bit of strong arming going on here. AbCap bought Argo (owned by Mr Rialas's brother) and the sale of Homms' shares has calmed fears that this deal would have to be unravelled, which could have caused irreparable damage, but it still does not makes sense. Argo are saying they may still seek compensation however.

Homm throws a hissy fit because his fund managers are not getting paid enough money, fair enough.. He then writes a letter saying he will fight for shareholder value. I believed this guy was the type to fight tooth and nail, but he gave up shares in a company he built without so much as a whimper. For a 6' 8" German who got shot because he wouldn't give his wallet to a mugger, this sale seems a suspiciously easy transaction.

So what could be up?

1. Homm is just cheesed of with the whole deal and is rich enough to wander into the sunset and put it down as a bad job.

2. He is going to start a new firm and batter his old firm out of spite.

3. There was something within AbCap that is not quite right and Homm saw the writing on the wall. (£3.5mn is better than nothing n'est pas? - please don't sue us - Compl)

Maybe its all down to the 'illiquid shares' that were in the funds. Obviously some of the performance of the fund could be seen in a great light because any movement on small caps can have huge affects on valuations. The problem, however, is that it is an unrealistic valuation because of the fact that small companies share price could not sustain a sale of large amounts of shares at the bid used for NAV. Maybe AbCap used a haircut valuation, maybe they didn't, I don't know.

Ask yourself this question; if all is OK back at the ranch why would you suddenly decide to resign and then suddenly decide to sell your shares at what amounts to a bargain basement price. Surely no one is that rich, not even Homm. Considering he also gave up 5mn shares of AbCap (then worth £33mn) to bolster funds his loss is around £66mn.

That money would have been a huge bonus for the 'underpaid' managers that Homm said was the reason for his departure. I just don't get it, maybe the coming days will make things a whole lot clearer.


ned1 said...

Your questions are sensible. Something new may yet unfold but since Homm has gone into hiding and nothing has been heard or seen of him, one can only speculate. As a punter on the company, it looks like a fairly good bet if Argo does nothing to rock the boat or if there are no further lawsuits. It is in many of the investors (of the funds)interests to support the company in it's proposals so they can still make some reasonable return.Stock up 30% today and could double again from this price.

Winterman Asset Management SA said...


Thanks for your comment. I agree, as we have said a position at this level would make sense, I just wonder what the 'real' story is..