Think updates on incubator proposal as it moves to alleviate related party concerns
Think Childcare (TNK), having recently announced the creation of a new “in house” incubator which was to be initially seeded with centres via two seperate transactions, has confirmed that one of the transactions has been recast to eliminate related party transaction concerns from shareholders.
Related party transactions arise when parties in agreement share a common interest, and are deemed to be risky as they raise conflict of interest concerns between stakeholders.
The transaction, known as Transaction 1, would have seen five services under construction and two services with pre development approval, purchased from entities associated with Mathew Edwards, Chief Executive Officer of Think, in exchange for approximately $5m of shares in the new development entity, Think Childcare Development Ltd (TND).
Although the transaction itself fits with Think’s new strategy to create their own pipeline, the transfer of value in TND shares to the CEO of the company who will ultimately assume ownership of the services was highlighted as a stumbling block for shareholder approval.
Transaction 1 to still occur but CEO to forfeit receipt of $5 million
To address the related party transaction concerns, Mr Edwards has agreed to formally withdraw from the transaction, and instead has proposed that the entities associated with Mr Edwards surrender all leases with immediate effect so as to enable TND to approach the landlords directly to enter new leases.
Under this arrangement there will be no consideration of any kind paid by TND to Mr Edwards and it will free TND to engage independently to secure leases on its own terms.
Commenting on the proposed adjustment Mr Edwards noted “after extensive feedback, the response from shareholders has been that a related party transaction will not be supported” and that “whilst I forgo a potential gain and recovery of any costs, my integrity, that of the board, the leadership team and of the company is far more important than any financial outcome.”
In light of this development TNK have commenced discussions with the landlords concerned who are supportive of the plan.
Overall restructure process continues as shareholders express support
The overall restructure, as announced on August 14, has in the main been supported by shareholders who recognise the potential benefits TND will bring to the organisation in terms of secured growth, the ring fencing of development risk, lower finance costs and ultimately the retention of development profits within the group.
The company also noted that a series of shareholder question and answer updates will be provided in the coming weeks as a further guide to shareholders to help them understand the proposal.
For more information on the announcement please click here.