TEP Exchange seeking more funds

15/11/2002

TEP Exchange, the operator of an electronic trading platform allowing financial advisers to deal in their clients' unwanted endowment policies, is planning to raise �275,000 in a complicated placing that will see business partner Surrenda-link take effective control of the group. Christopher Spink reports.

TEP joined AIM a day before the tragedies of September 11th 2001, raising �1.2 million via a fundraising at 8p a share. Although the shares briefly rose to a premium, standing at 11.75p, they have since collapsed to just 2p, valuing the group at �2.3 million. At the end of June TEP had just �200,000 left in cash.

Sales in the first half rose impressively from �50,000 to �422,000, enabling losses to drop from �819,000 to �266,000. However, the group is still undercapitalised and needs more funds to survive. Consequently TEP now plans to form a 'strategic alliance' with rival Surrenda-link that could 'transform prospects'.

Under the two-year deal Chester-based Surrenda, which already has a 6.5 per cent stake in TEP, will now manage TEP's operations and pay staff and other costs, thus cutting TEP's outgoings. Together the two groups hope to develop other products that could appeal to the 10,000 advisers registered with TEP.

TEP will pay Surrenda, whose chief executive Paul Sands already sits on TEP's board in a non-executive capacity, �400,000 in TEP shares annually to carry out the contract. These will be issued at 1p per share. In addition Surrenda will get extra shares at the same price equivalent to 20 per cent of TEP's turnover in each of the two years. In the second year Surrenda may be paid in cash rather than shares.

In addition, TEP will shortly issue 27.5 million shares, also at 1p per share, with Surrenda subscribing for 20 million of these. This will raise �275,000 gross.

If Surrenda takes up all the shares it stands to receive then it, and chief executive Sands, could end up with a 48.2 per cent stake together in the enlarged group. Under City takeover rules this would mean Surrenda having to make an offer for the whole group, but TEP is trying to get around this at the moment. The deal is conditional on this waiver going through. Expect another announcement shortly.