Cordiant, the former Saatchi & Saatchi advertising group, is planning a rights issue early next week to raise pounds 110m-pounds 130m from shareholders.
The money, the third cash call in four years, will be used to pay off debts of about pounds 130m and improve the financial position as the agency seeks to recover from the trauma of losing the Saatchi brothers.
Cordiant shares yesterday fell 7p to 84p, continuing their steady decline from a year's high of 148p as investors' concern about the company's financial health grew.
Charlie Scott, chairman, dismissed suggestions that the move was a desperate measure in the face of further decline, adding that Cordiant had renegotiated banking facilities in April and was not in breach of covenants. Under the agreement with its banks, which include Midland, Barclays and Chase Manhattan, a refinancing is not needed until January 1997.
Mr Scott would not discuss the size or timing of the rights issue, but said the conditions were about right.
"We have achieved management stability and won some important accounts," he said. "We are carrying expensive debt and can improve on the terms." The reduction of the debt from pounds 700m had been a big achievement, he said.
But another Cordiant source said that analysts' estimates that the company was looking for up to pounds 130m were not wide of the mark. "I think you can assume that a rights issue is close," he said.
In an official announcement to the Stock Exchange, Cordiant said that it had put proposals to its banks about raising new equity from shareholders and was in the process of obtaining approval. An analyst estimated that Cordiant, valued at pounds 185m, would need a one-for-one rights issue at 60p to raise pounds 120m, and the cash call becomes more difficult the lower the share price.
The first cash call in March 1991, under the Saatchi & Saatchi name, comprised a recapitalisation at 10p to raise pounds 60m. In June 1993 the company raised pounds 73m via a 10-for-27 rights issue at 130p a share. The company added that it did not anticipate another rights issue for at least three years, though things have changed substantially since then.
Maurice Saatchi, joint founder, was ousted after a bitter battle, and the company lost important business, including the $500m Mars account.
In January, the competition to fill the hole left by this lost business may get tougher when a restriction preventing Maurice Saatchi poaching former clients is lifted.
In the six months to 30 June, Cordiant made a pounds 29.6m pre-tax loss and warned that the loss of prestigious clients would hit its performance in the second half.Reuse content