The Great Debate UK
On Friday last week, the market value of Yell was 346 million pounds. On Tuesday the company revealed plans to raise 660 million pounds in new equity - and the share price went up. This is either a demonstration of the investment banker's art, as practised under Yell's new chairman Bob Wigley, or it's a realisation that the Yellow Pages business is not quite the dinosaur that so many suppose it to be.
The poor shareholders do face pretty severe dilution. Even if they subscribe in full to their one-for-one offer at 42p, one-third of the enlarged equity will be sold to outsiders, but it could have been worse. After the company's near-death experience, the price is a narrow 12.5 percent discount to Monday's close (and a mere 5 percent discount to Friday's close) marking a healthy contrast to the usual massive discount on recent issues.
The fees, on the other hand, are eye-watering. At 75 million pounds the advisers eat 14 percent of the gross amount raised, but at least they will have had to work for it, corralling hundreds of lenders into agreeing new terms, and staying on the underwriting hook for the next fortnight. There's also a neat twist; thanks to Yell raising more than the 500 million pounds minimum, the cost of the new debt will be cut by 25 basis points.
While this move ensures the company 's survival, it will be a long slog back to health. Trading remains miserable, and any slowdown in the rate of quarter-on-quarter decline owes more to last year's poor results than to any real improvement. Debt is still 3.2 billion pounds, or 5.3 times EBITDA, a ratio that must come down below 3.5 before Yell could consider resuming dividends.
It's hard enough to persuade your bank manager to agree new terms for your overdraft, but when there are 300 lenders who are owed nearly 4 billion pounds between them, it's perhaps no wonder that Yell's refinancing seems to be taking forever.
In June the Yellow Pages publisher signalled that the process was underway. On Wednesday it revealed agreement with its lead banks and a headline figure of 500 million pounds for its rights issue, roughly its market capitalisation after the recent run-up in the shares. The issue itself is unlikely before November, as Yell still needs time to corral its myriad lenders to agree to restructure its debt.