Perceptions matter when it comes to having faith in stock markets. The recent case of the company Allen-Vanguard has left many investors wondering if they’ve had their shares taken away unfairly.
Allen-Vanguard has had serious debt problems and its share price has dropped over 99% in the last two years. A Friday press release announced that Versa Capital Management would take over Allen-Vanguard, but that all existing shares would be “cancelled on closing of the transaction, with no consideration paid to holders.”
To the average shareholder, this can be baffling. Don’t shareholders get to vote on this? If a company is willing to take over Allen-Vanguard, doesn’t that mean it still has value? Investors can’t be blamed if they think that their shares were simply stolen away.
The reality is that Versa only took over some of Allen-Vanguard’s debts. If creditors agreed to only partial repayment, this is a strong sign that the company was indeed underwater and had negative value. Without any further information, it is plausible that the shares were worthless. Of course, it would certainly be nice to know whether some impartial third party was present to confirm that the shares were worthless.
All indications are that shareholders were treated fairly, but perceptions matter too. It isn’t good for Canada’s stock markets to have investors believing that they were robbed.