Cookson slumps on £277m rights issue

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The Independent Online

Cookson, the struggling industrial supplies group, announced a deeply discounted £277.5m rights issue yesterday to cut debts built up in a £1bn acquisition spree in the late 1990s.

Cookson, the struggling industrial supplies group, announced a deeply discounted £277.5m rights issue yesterday to cut debts built up in a £1bn acquisition spree in the late 1990s. Cookson also said it would pass the dividend payment as it plunged to a £44.5m loss in the first half.

All three of Cookson's businesses – electronics, ceramics and precious metals – have been hit by falling demand, particularly from the US. With interest payments totalling £29m in the six months to June against operating profits of just £16.7m, concerns had been growing about the group's ability to service its £750m debt mountain. The company had hoped to raise funds through the disposal of one business and the sale of a stake in another, but both deals fell through.

Cookson shares plunged 33 per cent to just 33.33p on the news. This compares with 278.5p in 1998.

The business is seeking to raise the money through an eight-for-five rights issue priced at 25p a share, a 49.5 per cent discount to the previous closing price. The fundraising is not under-written, though Cookson will still incur advisory fees of £13.5m. This will include £5.5m for Lazards, Cazenove and Merrill Lynch, which are acting for the company. However, Cookson pointed out that the banks would get nothing if the rights issue raised less than £100m.

Stephen Howard, Cookson's chief executive, denied it was a rescue rights issue. "Did we have a gun to our heads from lenders? Quite categorically not. Is it awful timing to be raising money? Yes it is. But we felt we needed to reduce the debt. The risk of delaying is greater than the risk of not going now. We believe that if people look through the current volatility they will see the upside."

The company wants to sell its precision products business, which recorded sales of £80m last year. It said current trading was in line with expectations, but the timing of a sustained recovery in its key market of electronics was unclear.

Mr Howard said he was confident the rights issue would succeed. "We're asking our shareholders to continue to support us in a major way. We feel that we have their broad support; a number of them represented in writing that we can count on their support, a number have confirmed verbally, and a number are still thinking."

Michael Costello, an analyst at Dresdner Kleinwort Wasserstein, said: "Provided the shares hold up and don't fade away between now and the end of August, then we'd expect probably a reasonable percentage to be taken up."

Some analysts commented that it would have been better to have completed the disposals before tapping shareholders for cash. Others said the company's mistake was in funding its acquisitions with debt rather than a mix of debt and equity.

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