The Disposition Of Ortwin Freyermuth Shares Of Cloud Imperium Games

The financial information coming out of Cloud Imperium Games, makers of the upcoming games Squadron 42 and Star Citizen, drips out at a slow pace. Back in July I wrote about how Cloud Imperium co-founder and vice-chairman Ortwin Freyermuth had resigned his position on the board of directors of Cloud Imperium UK LTD, the company controlling Cloud Imperium's development studios in Manchester, UK and Frankfurt, Germany. I wondered at the time if the resignation meant he had also sold off his shares in the company. According to the Confirmation Statement submitted to UK Companies House on Tuesday, the answer, at least outside North America, is yes.

At the beginning of May, Freyermuth owned 973,990 shares, or 8.3% of Cloud Imperium. While Cloud Imperium UK and Cloud Imperium US are divided for business reasons, the information published at the time of the initial investment indicated the issued shares cover ownership stakes in both halves of the business.

Share count in December 2018

Basically, the existing shareholders have the right of first refusal to purchase the shares according to the Articles of Association published with Companies House in November 2022. I don't need to proceed further with the rules as all of Freyermuth's shares were purchased by the other investors/shareholders. I thought going through the timeline might prove interesting.

Shareholders listed in the September 2024 confirmation statement

The first to purchase shares from Freyermuth was Erloch, Ltd on 7 May. The 30,034 shares acquired boosted the company's ownership stake in Cloud Imperium up to 70,034 shares or 0.6% of the company. Erloch is a bit of a mystery although I believe the company is based in the Caymen Islands, which would make sense if the company is associated with the Calders. However, information on the company is hard to find.

The next to purchase shares were the founders of Turbulent, Marc Deaudet and Benoit Beausejour. Each purchased 2219 shares sometime between 8-13 May. I don't know which one purchased first as they acquired the same amount. Upon the purchase of Turbulent in July 2023 the pair acquired shares in CIG and joined the company's executive group. Beausejour became the Chief Technology Officer and Beaudet the Senior Vice President in charge of Studios Operations. Each of the Turbulent founders now own 28,979 shares or 0.2% of the company.

Also on 13 May Indus Management LTD picked up 871,216 shares, increasing their share of ownership in Cloud Imperium from 13.3% to 20.7%. Indus Management LTD is the company through which Clive and Keith Calder made their main initial investment in Cloud Imperium in 2018. Currently Marc Nitsche represents the Calders' interests on the board of directors.

Finally, right before the deadline on the right of first refusal, Erin Roberts purchased 64,302 shares on 3 June. Roberts, the brother of CIG's CEO Chris Roberts and the company's Chief Development Officer. With the latest transaction, his ownership stake increased to 551,292 shares, or 4.7% of CIG.

That leaves two shareholders who did not purchase any of Freyermuth's shares were Chris Roberts and Infatrade UK Ltd. Chris Roberts, the co-founder of Cloud Imperium and current CEO, currently owns 71.1% of the company and effectively controls the board of directors. The other is more interesting. Infatrade is owned by Eli Klein, whom records show owns at least 75% of the company run by his brother Alon. Apparently Klein was involved as an advisor to CIG during the initial investment by the Calders and stuck around. Infatrade currently owns 2.4% of Cloud Imperium and Eli Klein sits on CIG's board of directors.

Why are the above transactions important outside the fact Cloud Imperium did not need to spend corporate funds to buy out Freyermuth's position in the company? Investors often look to what insiders in a company are doing to judge whether to invest in the company or not. Right now we have three people involved in making Squadron 42 and Star Citizen (Erin Roberts, Marc Deaudet and Benoit Beausejour) and the largest outside investors (Keith and Clive Calder) increasing their ownership in CIG. Plus, the Calders have a put option they can exercise in the first quarter of 2025 if they want to divest themselves of CIG. Instead, they increased their stake in the company by over 7%.

I should add that the shares are important when the company starts issuing dividends. At this point in its history, Cloud Imperium has only issued a dividend one time, in 2021 following a very good 2020 year, at least financially. Except for then, CIG has not recorded profits large enough to justify issuing a dividend.

If the board of directors decides, the company will issue a dividend. The total size of the dividend will equal 20% of the profits for the preceding year, distributed according to the shares owned. A year like 2022 when CIG only recorded a $1.3 million profit isn't worth issuing a dividend. But a year in which the company records a $130 million profit? I think if CIG only records a $130 million profit in the year Squadron 42 then Star Citizen will never finish development. More important from an investment standpoint, Indus Management LTD stands to receive a $5.8 million dividend payment if CIG records a profit of $130 million in 2025.

I should add one more piece of significance to the disposition of Ortwin Freyermuth's holdings in Cloud Imperium. Even after exercising their put options in 2028, all the outside investors, except for Eli Klein's Infatrade, will still own parts of Cloud Imperium. Anyone who thought the put options would end the influence of outside investors on the development of Star Citizen are probably very disappointed.