Settlement vindicates HCI’s aggressive stance.

CAPE TOWN – The share price of clothing and textile manufacturer Seardel jumped 21% on Friday on news that the company had settled longstanding litigationagainst its former directors.

The settlement is worth R247m, or roughly 30.74c p/share.

As a result of the settlement earnings per share and headline earnings per share for the year ended March 31 2012 will jump by at least 20% compared to the previous financial year.

The litigation has been underway since 2009. Shortly after HCI underwrote a R300m rights issue and assumed control of the debt-laden company it commissioned an extensive forensic audit into the financial dealings of former directors. What emerged prompted the board to lodge a R300m claim against the individuals concerned – in particular founder and former CEO Aaron Searll.

Searll passed away in 2010 at which point his estate became the defendant in the litigation.

Not many details have been disclosed, but the claim related to personal property transactions undertaken by Searll. These transactions were made for his personal benefit, but because they involved company property, the new Seardel board believed the benefits should have been passed on to the group.

Rather than enter into formal litigation the parties agreed to private arbitration at the 11th hour. This process resulted in a settlement in late February.

As a result the defendants will cede to Seardel the six properties concerned (all industrial) which were worth R17.6m at purchase; a R98.6m loan made by Searll to the company; the family share holding in Seardel in the form of 14.5m ordinary shares and 11.8m ‘N’ shares, collectively worth R20.8m will also be ceded to the group. In addition, Seardel will receive a cash payment of R10m.

Collectively this settlement is worth R147m, however if the properties are valued at current prices, the value is closer to R247m. This will be used to offset claims the Seardel group has against its former directors.

“We are relieved it has been settled in an amicable way and that we can now put this behind us,” says Seardel CEO Stuart Queen.

Investors were pleased too. “This is a significant settlement when weighed against the current market cap [R764m] of Seardel,” says fund manager Chris Logan. “It vindicates the controversial stand taken by the current board and shows their arguments had merit. There is substantial benefit for shareholders.”

The share price closed at 120c, up from 99c on Thursday.

Source: Moneyweb