Quindell buys out Connected Car Solutions deal with RAC and shares surge

Quindell shares have had a boost today on the decision to buy out their telematics joint venture with RAC called Connected Car Solutions. The shares are currently trading up 8% at 182p following official conformation of the story which was first rumoured by the FT about a month ago.

RAC will pay Quindell £15 million to exit the deal, leaving Quindell to cover around £3.5 million to get full ownership of the entity in order for it to buy back its brand licence, customer relationships and sales pipeline. The shares are rising because it takes some of the cash flow pressure off the company with Quindell’s capex eliminated  for the installation of the telematics boxes with positive impact on Quindell’s previously forecast cash flow in 2014 and 2015 of c. £10m and c. £20m respectively.

 

The RAC had got cold feet after warrants they were given as part of the deal were left worthless after Quindell’s shares fell heavily since the Connected Car Solutions deal was announced in April. These 16.67 million warrants have now been cancelled. Since RAC are also doing an IPO they were also probably keen to avoid any potential negative publicity surrounding Quindell. The RNS today said, “Due to market conditions beyond the control of either Quindell or RAC, the parties have concluded that it is not the best use of capital for either party to finance a free telematics roll out to consumers as initially planned. It is now in the best interests of both parties to restructure CCS and for Quindell to acquire RAC’s interest in CCS and continue their strong working relationship both in respect of existing contracts and in the future.”

Arun George, analyst at Quindell’s broker Canaccord Genuity, said: ‘We believe the uncertainty on the status of the CCS [joint venture] has weighed heavily on the shares. Today’s announcement provides a quick resolution as well as brings more consistency to Quindell’s global telematics strategy.’

 

Any deal which reduced cash flow pressure on Quindell is certainly a good thing. What happens with Connected Car Solutions will be interesting to see over the coming months. With the shares down 64% in the last 6 months, there is much to do to get longer term shareholders back in profit.

Contrarian Investor UK

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