The Safilo Group's board of directors decided yesterday to propose a capital increase aimed at raising up to €150 million in new equity through the issue of new shares. It has convened an extraordinary meeting of its shareholders for next Oct. 29 to approve its proposals, which are intended to support a program for the refinancing of its debt.
The transaction may lead Hal Holding, which controls GrandVision, to gain control over the world's second-largest eyewear producer if not all of Safilo's shareholders pitch in proportionately to the shares they own. Hal is already Safilo's main shareholder through a company called Multibrands. It raised its interest in Safilo from 37.2 percent to 42.2 percent in April 2012 through a previous, reserved equity increase.
In effect, Multibrands has now committed itself to participate in the share issue by maintaining its current stake. It also has agreed to purchase the balance of the remaining shares that will not be optioned at a discount. It will be able to buy the new shares at a low price, and it may have to launch a tender offer for the remaining shares only under certain circumstances.
Safilo pointed out that the new refinancing program is meant to support the more realistic business plan presented last month by the company's new chief executive, Angelo Trocchia, which budgets an improved Ebitda ratio of 8-10 percent for the embattled group on revenues of between €1,000 and €1,020 million by 2020 (Eyewear Intelligence Vol. 19, N° 12 of Aug. 31, 2018), despite the loss of the juicy Gucci license.
The move was widely expected because practically all of Safilo's current debt is going to fall due within the next twelve months or so. A €150 million revolving credit facility is set to expire in November, and a convertible bond of €150 million will mature next May.
Consequently, as we reported in our last issue, Safilo was aiming to arrange a total refinancing package of €300 million by the end of November that might include a rights issue as well as new convertible bond. In the end, on top of the rights issue, the company has also negotiated the conditions of a new refinancing program for an equal amount of €150 million with a pool of leading banks that would mature in about four to five years' time. The lending banks are expected to approve the terms of the program before Safilo's extraordinary shareholders' meeting.
The pricing of the new share issue and the final amount of the capital increase will also be determined by the board before the extraordinary shareholders' meeting. It will have to be not higher than €1;50 per share, giving a major discount on the recent price.
The initial effect of the announcement was a big drop in Safilo's share price on the Milan stock exchange. With some difficulties due to heavy selling, the stock price opened this morning at 10 percent below yesterday's closing price. It continued to drop in the course of the day, reaching a level of around €2.34 per share that gives the company a market capitalization of €146.6 million, down strongly from €270 million when the new business plan was announced on Aug. 2 and from €225 million last Aug. 30.
Safilo needs access to fresh cash. It had total net cash of €112.9 million at the end of June. With a net debt of €171.1 million on the same date, the group's net debt/adjusted Ebitda ratio rose to 3.4 times, prompting a breach of the covenants linked to its revolving credit facility. This triggered a remediation period with a new test due the end of September that will end in November. The expiry date of the credit facility has already been extended from July 29 to Nov. 30.