A heavily discounted $169 million equity raise is the cornerstone of Southern Cross Austereo's (ASX: SXL) Covid-19 game plan.
In order to reduce debt and enhance liquidity the group is inviting investors to take advantage of the raise and grab shares at a whopping 45.5 per cent discount to the last traded price of $0.165 per share on 23 March 2020.
The raise comes as media organisations experience a subdued advertising market. For SCA this has so far translated into a 10 per cent dip in advertising revenue over the last nine months, but that figure is expected to worsen.
With just $22.5 million in cash on hand at the end of 2019 and $353 million in drawn down debt, the group hopes the raise will strengthen its balance sheet.
The majority of the $169 million will go toward reducing net debt, with $7.2 million left over to pay for the transaction costs associated with the raise.
The raise will be undertaken through the issue of fully paid ordinary shares via a fully underwritten placement to raise approximately $47 million and an entitlement offer of approximately $121 million and will result in the issue of approximately 1,873 million new shares, representing 244 per cent of existing SCA shares on issue.
In addition to the equity raising proceeds, SCA intends to draw down a further $50 million of the available $107 million under its existing facilities.
If all goes to plan SCA hopes it will have enough cash on hand to manage the flat advertising market caused by the Covid-19 crisis.
While SCA says forecasting for the calendar year is difficult, the company expects revenues to be materially impacted by Covid-19 and down 30 per cent or more.
To manage the situation the company is deploying a $40 million to $45 million savings program to soften the blow of the crash in which executive remuneration will be slashed and the company's dividend will be withheld.
Cutting exec remuneration is expected to save SCA between $20 million and $22 million, while the withheld dividend will mean the company can hold onto an extra $21 million.
Further, SCA will be reducing marketing and promotions, its programming spend, and travel during the year. With relief from key suppliers and landlords on the way this element of the savings program is expected to save SCA between $20 million and $22 million.
SCA CEO Grant Blackley says the cost savings program combined with the equity raise will position the company well over the coming months.
"SCA believes these initiatives will provide the business with the balance sheet and a more efficient operating model appropriate for the current uncertain macroeconomic environment," says Blackley.
"The Covid-19 crisis is causing significant dislocation across advertising markets, but the fundamentals of SCA's business remain sound. The initiatives announced today position us to trade through this crisis and rebound when the recovery phase begins."
Shares in SCA have tumbled significantly in the last twelve months; down 87.59 per cent from a July high of $1.37 per share.
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