Derek Pain: Shells look like a safe little haven

Internetaction.com, one of the walking wounded from the traumatic hi-tech burn-out, is again trying to log on. After suffering one costly setback in its search for a willing takeover target, it has alighted on an unquoted company called Intelliplus, a telecoms operator.

Internetaction.com, one of the walking wounded from the traumatic hi-tech burn-out, is again trying to log on. After suffering one costly setback in its search for a willing takeover target, it has alighted on an unquoted company called Intelliplus, a telecoms operator.

The little company, with a capitalisation of only £800,000, is a classic example of that ever-popular stock market oddity ­ a clean shell. It is not weighed down by trading encumbrances and its main asset is its lovingly preserved share quote. Internetaction, therefore, represents an ideal vehicle for any ambitious unquoted group seeking a share listing.

Mind you, the life of a shell can be frustrating. At the height of last year's internet madness the company's shares were quoted at around 400p, giving a value approaching £60m. Then came the deal, a merger with an unquoted group called Powerten. But it was all a mistake and after incurring merger costs, including the expense of circularising shareholders and arranging a cash call, Internetaction called off what would have been a reverse takeover. The shares slumped, now sitting at 6p and valued at 5p for the Intelliplus deal.

Many shells are created more by accident than design when a company goes bust or changes direction by dumping its trading activities. Internetaction started life as a weather forecaster, Weather Action, floating at 79p. Behind the venture was Piers Corbyn, who started selling forecasts as a sole trader in 1989.

But weather forecasting is ­ ask Michael Fish ­ a precarious business and the loss-making weather side was sold back to Mr Corbyn for £1.

Then came the hunt for a suitable acquisition. After the Powerten stumble the group has alighted on Intelliplus.

But, like most shell deals, existing shareholders will not reap quick rewards. Those who moved in during Internetaction's halcyon run are bruised and battered. The Intelliplus team is collecting 416.7 million shares. They will be left, after a £350,000 placing, with a swamping 94 per cent of the enlarged capital. I am not suggesting Intelliplus is not an interesting company. It is. But its backers are extracting a good price with, in effect, a £21m valuation on their business.

The company started trading a year ago as a telecoms operator providing a range of telephone and billing services. It stemmed from a business developed by experienced communications men, Alan Abraham and Nigel Tatlock. In its first nine months it achieved profits of £444,000 from sales of £8.3m.

As I have illustrated, the Intelliplus connection has failed to encourage Internetaction's shares. But once the deal is done and dusted they could make modest progress.

Another shell nearing a deal is Paramount, a former constituent of the no pain, no gain portfolio. I alighted on the company when it ran a pubs chain. It sold the pubs and has since reorganised its capital to make itself into an appealing, well-funded shell.

I decided to give the shares the old heave-ho, as many shells are not particularly rewarding for investors. They were sold at 23p against a 15p buying price.

Last week the shares rose 7p to my selling price, as it became apparent a deal was not far away. Two experienced shellmen, Guy Naggar and Ralph Elman, have become directors. Another Paramount director, Christopher Mills, was behind the transition of Horace Small, a clothing firm, into software group Redbus Interhouse.

With the internet debacle there are now probably more shells floating around than at any time since many plantations companies had to surrender properties after African and Asian countries gained independence.