FRM Strategies principal Peter Flack has resigned as chairman and interim CEO of MGX after failing to negotiate a restructuring model with the group`s banks.
The MGX share price plummeted by 11c or 37% to 19c this morning, prompting a suspension of trade.
The JSE put out a notice at 10.13am saying only that "trading in the share of MGX has been halted pending a SENS announcement from the company". SENS is the JSE`s news announcement service.
Flack, a turnaround specialist, was appointed executive chairman and interim CEO at MGX last November, and tasked with heading a strategic review of the business. FRM was retained in an advisory capacity.
It turned out that this was no easy task, and a month later Flack lashed out at former board members, accusing them of strategic incoherence, poor corporate governance and ill-conceived acquisitions.
In a bid to reduce its debt levels, the group has disposed of several subsidiaries since Flack`s appointment. However, a dispute with the Securities Regulation Panel, relating to the acquisition of EC-Hold, has yet to be resolved, with a court battle looking increasingly likely.
MGX director Dan McMahon was in a meeting this morning and could not be reached for comment.
Although Flack was in a separate meeting at FRM this morning, an MGX news release says FRM Strategies principals have resigned from the MGX board and FRM will not renew its appointment, which expires today.
It quotes Flack as saying that agreement could not be reached with MGX`s banks on a restructuring model.
"In our view, the conversion of a substantial portion of MGX`s debt into equity is an indispensable requirement of a viable restructuring strategy and we submitted detailed proposals to the banks in this regard," he says.
"The banks` counterproposal essentially amounts to a redistribution of the debt, and makes no provision for the refinancing of the group.
"Intensive negotiations over the past month have failed to reconcile these fundamentally different approaches. In our opinion the banks` proposals for MGX are unworkable in the long-term."
MGX reported in April that it had incurred an attributable loss of R457 million for the six months to end-December. Flack said at the time that the group could be rebuilt over two or three years, but admitted that MGX`s survival depended on support from bankers and financiers.
The group received a R100 million lifeboat in the form of a revolving credit facility, repayable today.
Flack admitted in April that the sale of various assets would not reduce debt to acceptable levels.
"This means that MGX`s stakeholders essentially have two options: sell all the assets or restructure the group and its debt," he said at the time.
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