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Slater & Gordon Limited shareholders vote for mercy

The Slater & Gordon Limited (ASX: SGH) share price is rising today after the indebted law firm revealed its special AGM motions to issue new shares under its special lender scheme and effect a 1 for 100 share consolidation had been approved by shareholders.

As such that means a shareholder who owned 10,000 shares today will be left with just 100 soon in addition to suffering heavy dilution via the issue of new equity to the lawyers’ hedge fund creditors.

That’s the bad news, but the good news is that the restructured firm will have most of its crippling debt profile written off and avoid bankruptcy.

Slater & Gordon shareholders have been locked in a US creditors’ double Nelson for a while now, with its big bank creditors such as National Australia Bank Ltd (ASX: NAB) and Westpac Banking Corp (ASX: WBC) already taking substantial haircuts in selling off the debt owed to them at chunky discounts.

Today the stock has climbed 26% to 4.8 cents on the news, although the guide as to what the actual value of the equity could be worth under the restructure agreement is contained within the 483 page “explanatory statement” over the recapitalisation terms.

Slater & Gordon shares remain an avoid as the group remains in a position where the total value of its bank debts far exceeds the total equity or enterprise value of the company. In other words the shares have a negative value unless a rescue deal is implemented on virtually non-negotiable terms dictated by creditors.

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Motley Fool contributor Tom Richardson has no position in any of the stocks mentioned.

You can find Tom on Twitter @tommyr345

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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