If there's one thing we dislike here at the Motley Fool, it's companies treating their smaller shareholders unfairly.
AMA Group Ltd (ASX: AMA) and My Net Fone Limited (ASX: MNF) both earn our ire today for unfair treatment of shareholders.
Smash repairer AMA has today announced that it has raised $45 million in capital via a placement to existing and new shareholders at 60 cents, a 6% discount to the last traded price of 64 cents. What's worse is that AMA is a serial offender – having raised $15 million in 2013 via a placement with retail shareholders again left out in the cold.
Placements to selected investors at a discounted price dilute the holdings of existing shareholders. AMA has issued an additional 75 million shares, which will see the share count rise from 334 million to over 400 million.
We are particularly concerned that shares have been issued to new investors at a discount. If they were such big supporters of the company beforehand, why didn't they already own shares? Why do so-called sophisticated and institutional investors get to buy shares at a discount when retail shareholders are again left out?
AMA executive chairman Ray Malone says the funds raised would be applied to financing growth initiatives and 'meeting ongoing working capital requirements'. But if there's no imminent, urgent need for the funds, why didn't the company do a pro-rata renounceable rights issue to existing shareholders?
We regard that form of capital raising to be the fairest method of raising funds, as it treats all shareholders equally – and doesn't offer discounted shares to investors who obviously weren't interested in the company beforehand. And how were these 'new investors' selected? Were they favoured clients of AMA's brokers perhaps?
Either way, we deplore the actions of AMA once again, and suggest that the board of AMA might want to consider at least offering retail investors the chance to buy discounted shares through a share purchase plan (SPP).
My Net Fone similarly has announced a placement to sophisticated and professional investors, but hasn't even advised how much the company is seeking or the discounted price it is offering to those investors. No share purchase plan has been announced either, suggesting management have little regard for smaller shareholders. We'd suggest that Rene Sugo and his team at My Net Fone might want to consider offering retail investors a chance to buy discounted shares.
Foolish takeaway
Far too often, companies decide to raise capital via a discounted placement to favoured investors and treat their smaller, mostly retail investors unfairly. It's something we take seriously here at The Motley Fool, and companies won't get many chances before they end up in the bad books.
If you want a company to follow as an example, you only have to look as far as Corporate Travel Management Ltd (ASX: CTD). Jamie Pherous and his team have raised capital twice in the past 18 months – both times using a renounceable rights issue to existing shareholders.
