Former Saga (SAGA) chief executive and chairman Sir Roger De Haan has launched an audacious effort to rescue the over-50s insurer and holiday group, via a £150m fundraising.
Having sold the firm in a private equity-led staff buyout in 2004, and watched it buckle under the mounting pressure of cancelled cruises and rising interest payments this year, Sir Roger has pledged to re-invest up to £100m into the company via two placings and an open offer to existing shareholders. Following the fundraising, which Saga expects to take place next week, Sir Roger will also replace Patrick O’Sullivan as non-executive chairman for a proposed term of three years.
At first glance, the terms appear generous. The lion’s share of Sir Roger’s new stake will come from the issue of 224 million new shares, equivalent to 20 per cent of the current share capital and, at 27p, a 98 per cent premium to last Friday’s closing price.
The former boss will also commit £14.9m in another placing on level terms with shareholders at “a maximum issue price of 15p”, as well as a further £24.5m via an open offer expected to raise £74.5m. Saga’s board, which has backed the fundraising, said the cash call would strengthen the balance sheet “against the backdrop of the Covid-19 outbreak and the ongoing suspension of travel”, while positioning the company for “longer-term recovery and growth”.
News of Sir Roger’s intervention boosted Saga’s share price by 39 per cent to 19p on Tuesday. However, shareholders might have been looking at a substantially larger rise, had the board not rejected “an unsolicited and highly conditional 33p indicative approach” from a consortium of two US financial investors. Saga said the potential bid followed several earlier approaches “at a significantly lower valuation” and has since been withdrawn.
The board is therefore likely to be under pressure to explain its rejection of the offer when it unveils a new strategy alongside the fundraising and half-year results “on or around” 10 September.
Critically, that update will need further assurances on Saga’s indebtedness and cost of debt, which analysts at Peel Hunt reckon have risen from 8 to 10 per cent since March. The brokerage also argues that the fundraising “is necessary to lower the leverage ratios and allow Saga’s travel business to operate through a long(er) Covid-19 disruption”. Cash burn in the latter division is currently running at up to £8m a month, Peel Hunt says.
The return of Sir Roger comes 36 years after he assumed control of the Folkestone-headquartered business from his father Sidney De Haan, who founded Saga after the second world war, initially focused on offering retirees off-peak package holidays on the south coast.
