2/19/2016Redflex Stock Takes A Tumble
Redflex stock tumbles, but remains shored up by a bid to take over the company.
Investors are wary about investing in a photo enforcement company facing potential liquidation. Shares of Redflex Traffic Systems in the past few days tumbled to 25 cents a share on the Australian Securities Exchange on Tuesday, dragging the troubled firm's market capitalization below $28 million.
On Thursday, Redflex announced that ousted Redflex Chairman Chris Cooper took advantage of the bargain-basement price to gain more control over the company. Cooper's wife purchased 1.5 million shares of the company for $375,000 boosting her voting power from 9.9 to 12.3 percent. Together, the Coopers wield over 20 million shares and nearly one out of five shareholder votes. In 2009, shareholders forced Cooper out after the expensive Arizona freeway photo radar program flopped. He has been plotting a comeback ever since.
While the current share price is above the all-time low of 15 cents reached in August, it is well below the $2.75 a share valuation offered five years ago by Macquarie Bank. Cooper successfully blocked the deal at the time, demanding at least $3 a share. Now the company is hanging on by a thread.
In its latest annual report, Redflex reported it has $17 million in cash on hand, $54 million in equipment and an overall total of $165 million in assets. The firm stands to lose twice that amount in a federal lawsuit filed by Chicago, Illinois over the company's fraudulent claims. Ordinarily, corporations facing such a massive judgment would be covered by an indemnity policy. In this case, however, RSUI Indemnity Company asked a Delaware judge to issue a declaratory judgment saying the insurance firm does not need to pay the potential $383 million claim because Redflex committed a crime. If Chicago and RSUI win their case, Redflex would owe far more than it is worth. Redflex acknowledged the uncertainty to shareholders.
"The company's US subsidiary, Redflex Traffic Systems Incorporated, is currently a party to various legal actions and investigations that have arisen during the course of its business," Redflex explained in its annual report. "Any liabilities arising from such actions are uncertain and indeterminate as at the date of this report but may, in certain circumstances, be expected to have a material adverse effect on the group."