An announcement of a possible bid for telecommunications company Stentor failed to halt a sharp slide in the company's share price when its stock resumed trading yesterday after a three-month suspension.
Stentor shares dropped sharply on the Alternative Investment Market in London, hit by a warning of higher than expected losses, news that a proposed reverse takeover had fallen through and weak stock markets.
The shares closed at 111 1/2p sterling down 85p after the company announced that a deal which was to leave Stentor as the minority partner in a newly merged European company had fallen through. The company also warned that losses for the year to end March 1998 would reach about £5.5 million well in excess of the £4 million expected by market sources. Stentor also revealed yesterday that it now has to draw on its loan facilities to provide working capital.
Even the announcement that Stentor had become a takeover target itself failed to help its share price. In its announcement to the stock exchange, it said it had received a number of approaches from US telecoms companies "that may or may not lead to an offer being made for the company". These offers are being evaluated and the company will make a further announcement "in due course".
Market sources speculated that US companies such as WorldCom or the smaller Intermedia could be involved in a bid for Stentor, as a stepping stone into the European telecoms market. While Stentor has arranged loan facilities to fund current trading, finalising a deal with a bidder who can provide funds for investment and to cover operating losses will be vital to securing its future.
With revenue from call centres and call cards accelerating the company could move into operating profit towards the end of the current financial year but funds will continue to be required for ongoing investments. With accumulated losses of £7.1 million to the end of March 1998 and cash of £1 million held at end March 1997 plus the £6 million raised in a share issue in July 1997 the company had resources of about £7 million, meaning that its current cash position is difficult and it is dependent on bank facilities. Stentor has to produce its results for the year to end March 1997 by the end of September and an announcement of a deal could come at the same time.
In its announcement yesterday Stentor told the stock exchange that ABN AMRO Stockbroker (Ireland) has resigned as joint broker to the company because of a potential conflict of interest. Last week ABN AMRO Rothschild was appointed adviser to Telecom Eireann for its flotation and this is thought to be the conflict of interest referred to in the statement.
Stentor confirmed that negotiations on the proposed reverse takeover of "the European telecoms business of a multi national cable television and telecoms company" have been terminated. When these talks started the company requested the suspension of its shares. On the collapse of the talks it sought the lifting of the suspension. Stentor said the talks were terminated "after a lengthy due diligence". In May chief executive Mr Patrick Cruise O'Brien said that most parts of this deal were agreed with some issues remaining to be "finally settled". He refused to reveal the party involved. Market sources suggested that European cable company UPC was involved. Sources said that differences in corporate cultures and ideology as well as a failure to agree valuations resulted in the breakdown of negotiations.
Formed in 1996 to offer private phone network services to Irish customers through switches in the US and elsewhere, Stentor floated on the London AIM market in April 1996, raising £3.5 million sterling when it placed 5.3 million shares at 72p sterling each. In its first set of accounts since flotation the company reported losses of £1.6 million or 22.2p per share for the six months to end September 1997 on a turnover of £6,583.
