Aston Martin's New Boss Races Away With a Cool $46 Million
(Bloomberg Opinion) -- The maker of Aston Martin sportscars is finally moving to remedy a botched initial public offering that gave it neither the money nor the investors it needed. Friday brought a cash injection, a new shareholder and a shift in strategy. Crisis measures never come cheap and the rescue comes with many strings attached.
Aston Martin Lagonda Global Holdings Plc, by its own admission, had become financially stressed. Its debts are overwhelming; liquidity was drying up. The company is raising 500 million pounds ($656 million), the figure analysts thought it needed, selling a 17% stake to luxury and motorsport entrepreneur Lawrence Stroll and then seeking additional funds from its new backer and existing shareholders through a rights issue.
Stroll is buying in at 4 pounds a share, just shy of the closing price on Thursday. The placing represents the maximum dilution the company can inflict without having to make the deal available to other shareholders.
The two-part process is necessary because Aston would struggle to raise the funds it needs by relying solely on its existing investors and the market without providing a compelling new investment case and fresh management. While Italian private equity group Investindustrial Advisors SpA, a 33% holder, will take up its full allocation in the rights offer, the Kuwaiti investment fund that owns 28% appears unwilling or unable to contribute in full. It will take up a portion of its rights by selling the rest, perhaps to Stroll.
With interest waning from Chinese automotive group Zhejiang Geely Holding Group Co., Stroll — who brings expertise and money — could dictate the terms. He gets the executive chairmanship and a change of strategy. Buying as much as a 20% stake at a discount gives him quasi-control. That would usually require paying a premium for the whole business. Aston acknowledges that its governance arrangements contradict best practice and says the board will have to “consider its composition over time.” Still, the arrangement feels like it will become permanent.
The alternatives were probably worse. Aston now has an entrepreneur at the helm steeped in the luxury and automotive industries, and who has wealth committed to making it work. For minorities, already accustomed to being wedged between two big anchor shareholders, one of whom was a seller, that’s surely more comforting than worrying.
The strategy seems to double down on Aston’s existing approach. The main change is a beefed-up link to motor racing, and delaying a push into electric cars. This carries some risk. Aston will put its name on, and take an undisclosed stake in, Stroll’s Racing Point Formula 1 team. That replaces a straight sponsorship deal with the Red Bull Racing F1 team. Aston will be able to say that its luxury vehicles are descended from real racing cars. Expect the mix of vehicles in the range to be more evenly balanced between so-called front-engine sportscars, the new DBX sports utility vehicle, and luxury mid-engine cars.
The economics of this arrangement are unclear, and there’s a potential conflict given that Stroll is invested in both the F1 team and Aston. But his interest in the listed Aston carmaker is substantial enough to mitigate such fears.
The market reaction attests to the development being positive overall. Stroll has already made paper gain of 35 million pounds ($46 million) on his pledged placing shares — a 19% increase. The rewards for those who get in at the bottom can be substantial. But Aston and its shareholders are paying a dear price for the board’s old strategy of wishful thinking, rather than grasping the nettle sooner and raising equity from the market when it might still have been possible. Get the capital structure wrong and fail to find new long-term backers at IPO, and it will come back to haunt you.
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Chris Hughes is a Bloomberg Opinion columnist covering deals. He previously worked for Reuters Breakingviews, as well as the Financial Times and the Independent newspaper.
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