Safety equipment and workwear maker Cosalt (LON:CSLT) said the independent directors are recommending the offer initially tabled last week from non-executive chairman David Ross to shareholders.
Following the announcement that Ross was planning to pay 0.1 pence a share and take the group private, Cosalt’s share price took a steep dive.
The stock closed yesterday’s session at 0.31 pence, and this morning collapsed in opening trade to 0.175 pence, a 50 percent fall.
In today’s statement, the group said the offer values the entire issued and to be issued share capital of Cosalt at approximately £400,000 and implies an enterprise value of £14.4 million. The price represents an 87.18 percent discount to the closing price of 0.78 pence on the day before Ross made the offer.
Cosalt issued a profit warning a month ago and announced a strategic review. The delayed sale of the Marine division earlier in the year and the resulting pressure on cashflow had an adverse effect on its remaining business.
Earlier this week, the group had to put another statement out, saying that its cash flow position has continued to deteriorate such that it has only £900,000 of bank facilities available, enough to keep it going until the end of the month.
It is in urgent discussions with its major shareholders and banking partners and will be appointing restructuring advisers shortly.
Cosalt said the recent deterioration in the trading, the current debt level of £14 million and a pension deficit of approximately £9 million as at June 30 2011 means it may not be able to continue as a going concern.
David Ross has in recent years provided significant levels of funding to the group, including £10.4 million of equity funding, £2.6 million of loans and £4.6 million of bank guarantees currently outstanding.
The company requires a significant injection of capital to meet its obligations and buy time needed for a turnaround, but the largest largest shareholders are not prepared to invest more money, it said.
Ross believes that to preserve the company's future and to provide the opportunity to existing investors to recover what little value remains in the Cosalt 's equity, that it is in shareholders' interests to accept the offer.
The chairman has confirmed his ongoing support for the company, in which his family has had an interest for over 50 years.