Cobham's £507m rights issue priced at just 89p a share

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Cobham has tried to keep investors sweet with a discounted shares sale despite stoking suggestions that it was giving with one hand while taking with the other. 

The group will raise £506.7 million by offering current investors the right to buy one Cobham share for every two they own at a 45% discount to last night’s closing price. 

The sale will help Cobham stave off a knock at the door from its bankers by slashing its debt pile from nearly 3.5 times earnings to two times. 

The group had promised not to go above the 3.5 times level. A test of this was scheduled for the end of this month, which could have meant Cobham breaching its debt covenants. 

Boss Bob Murphy said the rights issue will put Cobham on “a sound financial footing”.  

However, the defence contractor has faced criticism for the plan, which will see it tap shareholders for cash while also maintaining its dividend payout to them. 

Cobham today said it had considered other options, including selling assets, cutting or suspending the dividend and amending loan agreements, but decided the rights issue was “in the best interests of the group”.  

The share sale comes amid a torrid time for the firm after an accounting problem at its wireless business hit earnings expectations.

Chief financial officer Simon Nicholls was due to join heating group Wolseley this year but last week Wolseley said it shelved the plan. Nicholls is still due to step down from Cobham but will remain to lead the rights issue until then. 

About £20 million of the £506.7 million raised will go to underwriters Merrill Lynch and Jefferies in fees. 

They are being paid to take on the risk of shareholders refusing to take up their allocation. If this happens, the banks are left owning the Cobham shares.

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June 1, 2016 |
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