Hosting services company Webcentral has continued increasing its stake in Perth managed services provider Cirrus Networks as its proposed shareholder vote to acquire Cirrus nears.
Webcentral revealed in an ASX announcement from 30 September that it now owns 18.04 percent of Cirrus’s shares, up from 16.74 percent in mid-September.
The company also said it plans to reach the statutory limit of 20 percent if it can acquire Cirrus shares for 3.2 cents each. Webcentral is looking to fully acquire Cirrus for that price once it gets approval from the MSP’s shareholders at the extraordinary general meeting on 15 October.
Webcentral also used the announcement to take another jab at Cirrus’s board. “While circumstances may change, the incumbent Cirrus Board has done little to genuinely engage with Webcentral to achieve an outcome in the best interests of all Cirrus shareholders,” the announcement read.
The company also took aim at Cirrus’ management, with CEO Matt Sullivan stepping down on 13 September and COO Chris McLaughlin named as replacement. Webcentral alleged Cirrus did not mention that the change came amid a “comprehensive review and restructure of the business” in the MSP’s FY2021 financial results.
“No ‘comprehensive review’ was announced when the $4.2m to $4.6m adjusted EBITDA (pre-options) announced by the incumbent Board on 17 February 2021 was downgraded to
just $2m adjusted EBITDA (pre-options) on 5 July 2021. No adequate explanation has been given as to what happened to the “Continued Growth Drives Record H1” in the February 2021 announcement,” the announcement read.
“Nevertheless, as Cirrus’ largest shareholder, Webcentral supports the cost savings referred to in the update. Webcentral has always held the view that Cirrus was labouring under unsustainable overhead costs.”
Cirrus Networks earlier this week also made a plea to shareholders, citing Webcentral's amount of net debt and the remuneration of chief executive Joe Demase. The points were not addressed in Webcentral's announcement today.
Webcentral also clarified its earlier statement on Cirrus’ commissioned report with valuation services firm Lonergan Edwards, saying that the 2.7 to 2.9 cents per share figure accounted for the removal of “synergies” of $1.5 million in adjusted EBITDA to the actual EBITDA figure of $2 million.
“The incumbent Cirrus board correctly notes that Lonergan Edwards valued Cirrus shares at between 3.8 and 4.2 cents but misquoted Webcentral by saying Webcentral asserted Lonergan Edwards valued Cirrus at 2.7 to 2.9 cents,” Webcentral said.
“What Webcentral actually said was that ‘Webcentral believes that the Lonergan Report effectively values Cirrus at 2.7 to 2.9 cents per share’.”
The company also maintained that Cirrus’ terms are not reasonable and not in line with reasonable market practice. “The incumbent Board should be focusing on engaging with Webcentral with a view to achieving an outcome in the best interest of all Cirrus shareholders rather than the incumbent board.”
Webcentral added that its status as Cirrus’ largest shareholder meant it has “a significant
vested interest” in the success and profitability of Cirrus.
“The Webcentral executive team has confidence in the Cirrus business. As an industry participant and long-term investor in Cirrus, Webcentral knows and understands the IT services business undertaken by Cirrus and believes the Cirrus business can be turned around and operated more profitably and on a maintainable basis,” the company said.
“Webcentral has a clear plan to turn around Cirrus. Webcentral has spent $5 million to date acquiring its stake in Cirrus and intends to see through its turnaround plan.”