Shares of Quindell skyrocketed in early trading today, climbing as much as 19% after a report that it planned to sell off one of its operating divisions. The goal of that disposal, if it happens, would be to improve the company’s overall working capital profile, reports Reuters.
Quindell may dispose of operating division
The U.K.-based insurance claims processing company also said it was in the early stage of negotiations with a number of parties said to be interested in potential transactions in connection with its operating businesses. Quindell could end up disposing multiple businesses in order to complete its cash generation initiatives.
The company made the disclosure to the stock exchange in official filings.
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Quindell investigates short-seller claims
Quindell shares plummeted in December after Rob Terry, the company’s founder, dumped 25 million shares in the wake of his November ouster as chairman. Right before Terry sold his shares, Quindell hired PricewaterhouseCoopers to investigate its business model after hedge funds revealed short positions and raised questions about the company, according to the Financial Times. In fact, Quindell was one of the most-shorted stocks last year.
PwC has been studying Quindell’s Legal Services segment, the company’s largest division, to see why it’s cash performance has been underperforming in the last few months.
Is Quindell’s news really good?
Even though investors reacted positively to Quindell’s news today, Alan Oscroft of The Motley Fool suggested it isn’t really all that great. In spite of the news, he continues to think the company is “in a cash flow hole.” He added that disposing assets a company “paid big money for” recently isn’t a “characteristic of a successfully growing company that genuinely has no cash flow worries.”
He believes banks are becoming concerned about the cash they’re risking and that the investigation was simply an attempt to put bank executives’ minds at ease. In addition, Oscroft thinks even if Quindell does manage to raise some cash by selling off some of its business segments, that doesn’t say anything about its viability in the long term.
He added that the only way to really know if the company’s business really is viable, investors will have to wait for the full report from PwC and see how banks react.