Swvl, a Cairo-based mass transit company headquartered in Dubai, tries to back out from the $40m deal it signed last year to acquire Turkish B2B mobility startup Volt Lines.
Swvl suffered from low liquidity and high financial losses during the recent period.
In April 2022, Swvl announced the acquisition of Volt Lines for $40m and promised to invest an additional $25m.
The Nasdaq-listed bus operator filed a notice with the US Securities and Exchange Commission (SEC) last week notifying it that it seeks to block the acquisition.
Swvl stated that it had “entered into a definitive agreement with some of the former shareholders of Volt Lines, a private limited liability company, providing transportation services to the business sector and individuals based in Turkey, to cancel its previous acquisition of Volt Lines.”
Volt Lines, founded in 2018 by Ali Al-Halabi, offers transportation services as an alternative to public transport to individual and corporate clients in Turkey.
Volt Lines shared buses were used by more than 110 companies in the region at the time of the acquisition.
The company’s acquisition at the time followed a wave of buyouts by Swvl that led to the purchase of ViaPool, a Latin American mass transit company with operations in Argentina and Chile; Berlin-based mobility startup door2door; and Shotl shuttle bus service on request.
A few months after Swvl’s wave of acquisitions, the planned takeover of Zeelo in London by Swvl was canceled after its share price fell 33% from its IPO highs.
Swvl’s share price has since fallen another 65%.
Swvl says former Volt Lines shareholders are under no obligation to reconvert or cancel Swvl shares already received from the previous acquisition agreement.
Although the acquisition was valued at $40m, Swvl was only obligated to pay Volt Lines $5m in cash (within 6 months of closing the deal).
The balance was to be settled by issuing 1.4 million Swvl shares in four major tranches.
Given Swvl’s revenue performance, which in the first half of 2022 was approximately $66m and has yet to release its results for the third quarter), it is likely that this point of the new share issuance has not been reached.
Swvl said, through Youssef Salem, the financial director, in previous press statements, that the company hopes to reap profits in 2023.
“When we went public again in July 2021, we had estimated to start making profits in 2024, but in response to market conditions, we had to increase profitability by one year to 2023,” he said at the time.
Last December, Swvl exited Pakistan, its second-largest market.
In a related filing, Swvl was also notified by Nasdaq that it is not complying with its rule that requires Nasdaq-listed companies to maintain a minimum market capitalization of $50m.
Swvl’s market capitalization is currently just over $21m, up from its December lows of just under $15m.
To regain compliance with the Nasdaq listing rules, a Swvl stock would have to trade at 37 cents or more, to have a market capitalization equal to or not less than $50m; for at least 10 consecutive business days prior to 10 July 2023, otherwise it will be written off.
The company’s rapid growth and expansion strategy has come under heavy criticism, after its share price collapsed amid a decline in technology stocks.
Swvl previously said it had set up a special committee that included independent directors from the company’s board of directors to “explore and evaluate potential strategic alternatives” to enable the company to continue operating.
The full list of “potential strategic transactions” includes selling the company, merging, selling all or a portion of the company’s assets, and financing new debt or equity.
If the commission fails, Swvl says it may need to scale back or discontinue parts or all of its operations in order to further reduce costs or seek bankruptcy protection.
According to stock analysis, Swvl has $24.30m in cash and $6.18m in debt.
