WILMINGTON – New Castle County Executive Matt Meyer will not sign off on a plan to swap the county’s collateral in the Delaware Board of Trade (DBOT) investment for stock in the company’s new owner after initially backing the plan.
Meyer’s administration sought to sign the deal in November, and the New Castle County Council voted 11-1 on Nov. 12 to support the plan to trade its $3 million loan for stock in Ideanomics, a company that acquired the startup “penny-stock” market earlier this year.
The controversial loan signed by former County Executive Tom Gordon but opposed by the council used the software’s licensing agreement as the county’s collateral. Unlike traditional non-cash collateral like land though, its value largely depended on DBOT’s growth. That growth hasn’t materialized as hoped, and now Ideanomics wants to dump the software in favor of a competitor, spurring a need to address the county’s loan collateral and the company’s offer to pay it off via issuing common stock.
On Friday, Dec. 6, Meyer told Delaware Business Times that he changed his mind on the proposal after additional debate with his advisers convinced him that doing so would risk the county’s ability to recoup its full investment.
“We do not want a Chinese ‘penny stock’ in a startup company,” he said, noting taxpayers deserved to have their $3 million back in cash.
The stock closed Dec. 5 at 82 cents a share, about 50% lower than its $1.68 a share value exactly one year ago. While the company led by Chinese billionaire tech investor Bruno Wu reported profitable first and second quarters, its third quarter report in November broke the streak and dropped share value sharply.
“This was something my predecessor should not have gotten the county into … and I intend to get back the $3 million that was unlawfully loaned to this group of well-connected businesspeople,” Meyer added. “It’s pretty clear to me that the way this agreement was consummated three years ago was not legal in the first place.”
Meyer said that he had not spoken with anyone from Ideanomics since he decided to not sign the stock-swap deal, saying, “I communicate (with them) only through my lawyers.”
The executive added that he is confident that the council agrees with his decision to not taking the offer. Councilman John Cartier, who co-sponsored the resolution of support approved by council, told DBT that he supported Meyer’s decision.
“We signed the non-binding resolution to give Matt every tool in the toolbox in his quest to try to recoup the money,” he said. “At the end of the day, the county executive is the negotiator for the county.”
DBOT has made each of its annual interest payments of $180,000, including its 2019 payment on Nov. 25, but the loan will mature next year, requiring the last interest payment as well as the $3 million principal, none of which has been repaid to date. By not taking the stock-swap deal now, Meyer gains a year to try to negotiate a better deal before the bill comes due in November 2020.
The lone dissenting council vote came from Council President Karen Hartley-Nagle, who sought to table the Nov. 12 resolution pending further advice from a financial adviser. She voiced her concerns about the lack of information provided by Ideanomics to council regarding the stock-swap plan and its risk potential to taxpayers if share values fall or the company goes bankrupt. She noted that if Ideanomics should go bankrupt, creditors would be paid before shareholders in the liquidation of its assets.
“We get all of the bad and none of the good,” she said of the plan that would pin the county’s investment to the company’s ability to increase shareholder value.
Hartley-Nagle emphasized that she wanted to hear Wu personally guarantee the $3 million loan or have Ideanomics obtain a surety bond to protect the county.
“Our constituents deserve no less,” she said. “In good faith, we put hard-earned taxpayer money with a promise of jobs, not stock in a risky company.”
By Jacob Owens