Shareholders will have to pay over the odds for shares in the rights issue, writes Dominic Coyle.Waterford Crystal job losses
Shareholders are being asked to find €100 million to fund the redundancy programme announced yesterday by Waterford Wedgwood.
The company has said it will pay the €90 million bill for the job losses through a rights issue, under which existing investors will have the option to buy seven shares for every 11 shares they currently own.
But they will have to pay over the odds for the shares. The rights issue shares will be offered at six cent each, 50 per cent more than the four cent Waterford Wedgwood was trading at on the Irish Stock Exchange just ahead of the announcement.
Even after a 37 per cent surge in the company's stock market value following the news yesterday, the stock was trading last night at just over five cent, making the company worth €133 million.
The company said the pricing of the rights issue was determined by the money paid by shareholders last January, when Waterford Wedgwood raised €100 million in a separate rights issue to fund the purchase of Royal Doulton.
Ahead of that exercise, chairman Sir Anthony O'Reilly told shareholders at the company's annual general meeting that he hoped they would never get the opportunity to take up Waterford Wedgwood shares at six cent again. "Shareholders have been intensely loyal to the company. They deserve prosperity over the next five years."
A spokesman added that management was keen not to dilute the recently-increased shareholdings of the 75 per cent of investors who took part in the January rights issue.
Analysts said the company was taking a pragmatic view in pricing the current rights issue. However, they also pointed out that Waterford Wedgwood might struggle to gain shareholder approval for any fundraising at a lower price.
As it stands, the company must get shareholder approval for a "whitewash waiver" that would allow major shareholders Sir Anthony and his brother-in-law Peter Goulandris - who have agreed to underwrite the issue - to own more than 29.9 per cent of the stock without making an offer for the whole company.
Such a waiver, which must be sought from the Takeover Panel, requires the approval of just a majority of shareholders at an extraordinary general meeting.
However, any attempt to move the price below six cent would require a special resolution needing 75 per cent support.
The O'Reilly and Goulandris families currently control 24.6 per cent of the company's stock. Both have already indicated that they intend to take up their full entitlement under the rights issue. As sole underwriters of the issue, the two families could end up with 54 per cent of the company if no one else was to exercise their rights.
That is an unlikely scenario. However, only three-quarters of Waterford Wedgwood's shareholders took up their rights in the January issue and, given the continuing decline in the company's fortunes since then - both in the stock market and on a trading basis - it is likely that the take-up this time around will be no higher.
On that basis, the O'Reilly and Goulandris families would control 34 per cent of the company.
The only other significant shareholder is Bank of Ireland Asset Management, which holds an 11 per cent stake.
Even if the rights issue was fully subscribed, the O'Reilly and Goulandris families will have pumped €60 million into Waterford Wedgwood in three rights issues over the past 18 months.
Analysts say that market rumours of a swoop by the principal shareholders - hotly denied by Sir Anthony last October - were premature.
Stuart Draper of Dolmen Stockbrokers said: "With the company back on an even keel once the benefits of this restructuring materialise, I would not be surprised to see private equity houses coming in alongside the principal shareholders to take the company private."
First of all, the company needs to deliver. NCB's John Sheehan notes that Waterford Wedgwood has announced a string of major restructurings since the September 11th, 2001, attacks. "Cost savings under previous initiatives have been eroded by underlying inflation in the company's cost base and the weakening dollar," he said. Only by delivering the promised savings this time can the company turn its fortunes around, he added.
Goodbody's Michael Clifford said yesterday's announcement was the sort of "radical" move that had been required for some time. "A lot of uncertainties remain but this gives the company time and breathing space to take the necessary steps to improve its performance."