The following is a letter sent to the press on the actions of this company in March 2004 by Stilo shareholder and UKSA member Roger Lawson (email R. Lawson):

Private Shareholders Again Prejudiced in Stilo Placing

Stilo is an AIM company that has just announced a placing of shares to institutions to raise £900,000. This apparently is to be used to fund expansion of the business. Unfortunately the company has decided to do this via a “private” placing with about 10 institutions, and there will be no open offer to the existing shareholders.

The placing price is to be 2.5p whereas the middle market price before the announcement was 4.25p so there is a large discount of 42%, and the new shares will represent 44.3% of the new share capital.  In other words existing shareholders are to be massively diluted at a price which is much less than the market thinks the shares are worth! As a long standing shareholder in Stilo I would be personally very willing to subscribe for shares at 2.5p as it is clearly an instant bargain.

With normal listed stocks on the LSE, you need special approval to justify any placing at more than 10% discount, as clearly any such placing is prejudicial to existing shareholders. But apparently this is not required in this case because they are an AIM stock.  The justification for the lack of an “open offer” to existing shareholders was the cost of dealing with the large number of shareholders in the company (all of 900 so the postage to distribute an offer document would have been about £200 which is hardly a major expense).

Regretfully this is yet another example of the prejudice against private shareholders (who apparently predominated in Stilo before this placing), and a prejudice in favour of institutions. The UK Shareholders Association (www.uksa.org.uk), of which I am a member was formed to counter this trend and I would encourage any other shareholders in Stilo who are opposed to this move to contact me.

It is also an example of where the AIM listing rules need to be tightened up so as to prevent this and other examples of a cavalier attitude to shareholders rights which seems to prevail in some AIM listed companies.

Postscript

At the EGM to vote on the above proposal, only one shareholder turned up other than the directors and company staff (even the Chairman of the company didn't attend). Perhaps a time of 10 a.m. and it's location in Bristol discouraged attendance. The proxy vote was massively in favour of the proposal although only 39% of shareholders submitted a vote. Known private shareholders did not vote because of difficulties with being in nominee accounts and even institutional holder 3i did not submit a proxy. Does this mean they abstained or is it a simple failure of the voting systems as outlined in the recent Myners report on institutional voting? Clearly with such a low vote and poor turn-out for the meeting, shareholder democracy is not working when this was such an important matter for shareholders.

Subsequent Share Option Rewrite

On the 3rd June 2004, the Company announced that 800,000 share options previously granted to the chief executive were to have the option price reduced from 10p to 2.5p (subject to the market price being more than 6p). How this is justified or how it relates to the new share issue was not explained, and it is difficult to see any good reason for this change.