Shame on you Retail Food Group

Yet another Australian company has ripped off its retail shareholders.

Retail Food Group (ASX: RFG), a franchise owner of brands including Michel’s Patisserie, Brumby’s Bakeries, Donut King, Pizza Capers and Crust Pizza, has today announced that the company had successfully raised $53 million by issuing 12.3 million shares to institutional investors.

The shares were issued at $4.30 each, and the company says it was significantly oversubscribed. Perhaps that’s not a surprise when the issue price was a 6.5% discount to the last closing price of $4.58. That’s money for jam.

Here’s my first beef. Retail Food also says it is pleased to welcome 33 new shareholders to the register, including a number of respected institutional investors. If the capital raising was heavily oversubscribed, how did 33 new investors, who didn’t hold shares in the company beforehand, get the chance to pick up shares, at a discount, that could’ve been offered to existing shareholders? Perhaps they were favoured clients of the placement managers, Petra Capital and Wilson HTM (ASX: WIG)?

While all shareholders will get a chance to buy shares in a share purchase plan (SPP) at the same discount price, the SPP is limited to around $7 million and shareholders are only allowed to subscribe for up to a maximum of $15,000 worth of shares. Retail Food says it will use its discretion to scale back the SPP if it is oversubscribed, which appears likely.

As I wrote just two days ago, the corporate regulators, ASX Limited (ASX: ASX) which owns and operates the Australian Stock Exchange, and the Australian Securities and Investments Commission (ASIC) need to stand up to protect the rights of all investors and make capital raisings fairer.

While Retail Food may argue that this is the way it is done in Australia, that’s not a valid excuse for finding a more equitable way of raising capital. A pro-rata, renounceable rights issue would have likely worked just as well in this case, giving all shareholders, large and small, the opportunity to participate or be compensated for being diluted.

Foolish takeaway

So far moves by the regulators have been less than enthusiastic, and corporate Australia is unlikely to change its spots until laws are enacted to protect small shareholders. Let’s hope the ASX and ASIC come to their senses soon.

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Motley Fool writer/analyst Mike King doesn’t own shares in any companies mentioned.

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