Saga PLC (LON:SAGA) shares leapt off their sickbed on Tuesday after the company confirmed it was close to raising £150mln, mostly from its former owner, after rejecting a private equity offer.
Roger De Haan, son of the founder of the over-50s holidays and insurance specialist, has committed to investing up to £100mln, of which £60.6mln will be invested at a premium price.
READ: Saga has ‘strategic options to bounce back’, says broker
A placing of 224mln new shares, representing 20% of the current issued share capital of the company, will be priced at 27p per share, the London-listed company said, a 98% premium to the 13.61p closing price last week.
The troubled company said over the weekend that it had received an “unsolicited and highly conditional” 33p-a-share takeover approach from a pair of US private equity firms.
Instead, Saga revealed the investment by 71-year-old De Haan, which it said reflects his “belief in the underlying strength of the Saga brand and business and his confidence in the new strategy under the strengthened management team”.
De Haan, who was chief executive and chairman of the business founded by his father more than 70 years ago before selling it to private equity group Charterhouse in 2004, has also committed to buying £14.9mln more at the same pricing and terms as will apply to Saga shareholders, subject to a maximum issue price of 15p per share.
The billionaire, who will return to the board as chairman, has also effectively underwritten £24.5mln more, acting as a ‘conditional placee’ for the placing and open offer that is expected to raise total proceeds of £74.5mln at up to 15p per share, subject to clawback by Saga shareholders in the open offer.
“The board unanimously considers that the proposed equity raise will support the execution of its reinvigorated strategy under its strengthened management team, which it believes will return Saga to sustainable growth and lead to the restoration of significant shareholder value,” the company said in a statement.
A new strategic plan has been drawn up and will be presented at the interims in a week’s time.
In a recent trading update for the period from early February to June 21, 2020, Saga said it had made “good progress”, with its insurance business proving “resilient” during the coronavirus disruption but its travel business having “remained on pause” since a decision to suspend operations in mid-March due to the pandemic with 70% of guests having moved their bookings to later sailings.
Management shifted the business to a full remote working model and said cash burn had been minimised, while also completing the sale of the Saga Sapphire cruise ship.
Hope springs rebound
Saga previously creaking shares rocketed 77% on Tuesday morning to 24.14p, but are still two-thirds lower than where they started the year.
The funding will provide financial flexibility, liquidity and reduce leverage ratios, said broker Peel Hunt. “This is [a] surprising but sensible move that should keep the Saga group together.”
De Haan's decision “has created hope that the company can claw its way out of a hole partly of its own making but exacerbated by the coronavirus crisis”, said Russ Mould, investment director at AJ Bell.
He said this “should prove a better outcome for investors” than the rejected offer as De Haan is invested both financially and emotionally in the business.
“Saga remains in a very tricky place, it has no certainty on when normal service will resume in the travel business, and it will still be saddled with debt, partly associated with its ill-timed launch of two purpose-built cruise ships. If Saga can steer a course through the current choppy waters one can understand why the proposition might have some merit, given demographic trends should create an increasingly large pool of prospective customers. However, like many businesses, Saga still doesn’t know exactly how a post-Covid future will look,” Mould added.
Analyst William Ryder at Hargreaves Lansdown said the over-50s specialist's need for a rescue fundraising was unsurprising: “In some ways, it would be hard to design a company more susceptible to a pandemic than the group’s travel operations – and Saga didn’t start the year in the best of health either.
“The new money will dilute current shareholders, but we doubt there are too many long term investors left. The shares have fallen heavily over the last few years, and the pandemic only threatened to administer the coup de grace. We suspect the shareholder base now comprises mostly vestigial holdings that don’t merit selling and more speculative investors hoping for a miraculous recovery. Neither is likely to mind being diluted, especially with a seasoned former CEO returning to the leadership team with fresh cash.”
--Adds shares and broker comment--