Sanctuary, the embattled music group behind artists such as Sir Elton John and Beyonce, has appointed the corporate finance firm Evolution to oversee an equity fund-raising of between £100m and £130m, expected later this month or in the New Year.
The highly indebted company, which has a market value of just £12m, is expected to make an announcement today. The share placing will have to be deeply discounted and will almost wipe out existing shareholders. The largest investor is Endemol's co-founder John de Mol, the inventor of Big Brother, with 19 per cent. Other shareholders include Sanctuary's management - led by co-founder Andy Taylor - and Fidelity, Morgan Stanley, Goldman Sachs and UBS.
Sanctuary, Britain's largest independent record company, has a £135m loan and credit facility with Bank of Scotland, part of HBOS, which is believed to be almost used up. As part of the rescue package Sanctuary plans to restate its accounts of the last three years including an exceptional write-off of about £150m. It plans to publish its annual results, which are usually delivered in January, later this month.
The company issued several profit warnings over the summer after the release of eleven US urban music albums was delayed and costs spiralled out of control. Sanctuary admitted that it would make a loss this year before interest, tax and one-off charges. Takeover talks fell through with bidders including EMI and Warner Music Group and private equity groups.
A management reshuffle looms to reassure the City after Mr Taylor, the executive chairman, was forced to split his roles. It is understood that the finance director, Michael Miller, could be moved to a new job. The company is also close to announcing two non-executive hires with financial rather than creative expertise, while the search for a new outside non-executive chairman is expected to take months.
Bank of Scotland is understood to be fully supportive of the group's strategy to slash costs and get sales back on track. In the summer the bank called in the accountants Ernst & Young to conduct an independent viability study to make sure the company could continue trading.
Sanctuary is believed to be confident that it can trade out if its financial difficulties even without the fund-raising and that it can return to profitability this year. It took the knife to 175 jobs, a quarter of its staff, mainly in the US. Savings from the job cuts and other measures will be about £16m, double the original target of £8m.
Analysts have blamed Sanctuary's troubles on its rapid global expansion, including the 2003 acquisition of Music World Entertainment, the US urban music management company owned by Mathew Knowles, father of Beyonce.
On Friday, the shares closed at a record low of 3.25p.