Quindell's major makeover

Quindell has confirmed that Aussie law firm Slater & Gordon will buy its legal arm for at least £637 million. It could be millions more depending on the future settlement of its clients' noise induced hearing loss (NIHL) cases. That's music to the ears of loyal Quindell shareholders who will be rewarded with a huge return of cash. However, there are lots of moving parts here - not least the independent review carried out by PwC - and valuing what remains of the company will be impossible until the insurance outsourcer's finance team have done their work.

Offloading its professional services division (PSD) is a "landmark deal," according to interim chairman David Currie. Not only will it bring in about £649 million, which includes various other payments linked to the period of exclusivity, but it follows significant due diligence by legal experts at Slater & Gordon.

"This is pretty much a done deal," Currie told journalists on a media call this morning. "It just requires shareholder approval and will need regulatory approvals. We would expect both regulators to be comfortable with the deal."

Some of the proceeds will repay third party debt of about £45.6 million, but most will go back to shareholders by way of windfall worth at least £500 million, or more than 100p per share, probably in the second half of 2015.

Name change

Currie also suggested that a name change is very much on the cards. "I will be surprised if it's still called Quindell in a year's time," he said.

That could complete the repair of Quindell's relationship with the City and transformation from market pariah, a position blamed largely on the tactics and aggressive accounting policies employed by founder and former chairman Rob Terry.

Although Currie told Interactive Investor it is unlikely PwC's full report will ever be published, he did say the company will report the implications once it's concluded. What we do know is that PwC did not like some of Quindell's old accounting policies used to recognise revenue and deferring case acquisition costs in a number of product areas. "Largely acceptable but are at the aggressive end of acceptable practice," said the accountant. It also found that some policies "are not appropriate," mainly NIHL cases revenue and related balances.

But when asked if online critics had been vindicated by PwC's finding, Currie said he believed "vindication is Slater & Gordon's offer".

However, Quindell has decided, sensibly, to adopt "a more conservative approach to accounting for revenue and profit in the professional services division".

Boardroom change

A major boardroom clearout will follow completion of the PSD sale. "It's important there's a break from the past," said Currie who will, as previously flagged, become a non-executive director and be replaced by Richard Rose as non-executive chairman. Chief executive Robert Fielding will go with the PSD to Slater and be replaced in due course. Finance director Laurence Moorse - caught up in the sharedealing scandal last year and who had already agreed to leave the company - will resign from the board on completion. So, too, will Robert Bright, Robert Burrow and Vice Admiral Robert Cooling.

South African Jim Sutcliffe will no longer join the board. He'll leave on 30 June, but remain as a consultant until at least the end of the year. Both he and Rose have agreed to voluntarily allow all of their share options - a controversial award announced in January - to lapse at completion.

A new era

What's left of Quindell after the sale will be a collection of insurance-related technology businesses "with strong growth potential". That means the Himex and iter8 connected car and telematics businesses, insurance broker Ingenie, and insurance claims management systems.

Quite what they're worth is unclear, especially given the changes to accounting policies suggested by PwC and Quindell's ongoing assessment of them. "The board has not yet finalised either the precise policies to be adopted or their financial impact and so it is not currently possible to provide a definitive view of the historical results on this basis although the changes will likely result in a reduction of revenue and profit," said the firm.

The question of earnings guidance for the remaining business was one Interactive Investor put to Currie on the media call.

"Fair point," said Currie. "We have a few weeks between now and expected completion. One job of the board will be to get research out there to fill that gap."

Until then it's still guesswork. However, if the numbers stack up, the major makeover could at least remove the threat of skeletons in cupboards and make Quindell investable based on fundamentals.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.