SMG wins £95m breathing space with share deal

Published on Wednesday 7 November 2007 00:14

SMG chief executive Rob Woodward appears to have pulled off a financial rescue deal which provides the embattled media group with breathing space in which to turn around its fortunes after tapping investors for £95 million.

The rights issue, designed to slash SMG's massive debt pile, came as Woodward, below, revealed the firm had been facing penalties fees from its bank of around 20m next year.

Woodward has put reducing debt at the centre of a turnaround strategy and said yesterday the "onerous" fees on its current facilities were not sustainable for the Glasgow-based business.

The owner of the ITV franchise in Scotland said it would offer every shareholder two new shares at 15p each for every current share, tripling the number of shares and cutting debt to just over 40m. Woodward said the fundraising would return the company to a "stable financial footing in one go" after delaying plans to sell off or float Virgin Radio recently. The penalty fees were on top of normal interest charges which he said was "simply not sustainable".

He added: "Rather than paying debt providers equity level returns, we're doing it the other way around, allowing equity holders to share in the returns of the company."

It has already sold its outdoor advertising business, Primesite. However, debt remained well over 100m, a level at which lenders had not been willing to support SMG at normal rates.

Woodward said that, following the rights issue, which has been fully under-written by Hoare Govett, SMG would refinance "on normal financial terms".

The chief executive insisted the sale of Virgin Radio, which the company considers non-core compared to its television assets, was still planned for the first half of 2008, but admitted this could be further delayed. Analysts have estimated the sale of the radio station could raise 60-100m. However, the credit crunch, the wide range of media assets on the market and SMG's debt led to speculation the Scots company may receive as little as 50m.

Woodward, pictured left, said: "We will be looking at the first half of the year [to sell Virgin Radio], but that depends on market conditions. The issue for us is that we will be selling from a position of financial stability and strength, rather than perceived weakness."

Following the Virgin disposal, SMG plans to return cash to investors, meaning three major transactions, possibly within a year.

Woodward conceded this would involve significant fees, but said the "major focus" was bank penalty fees.

Analysts pointed out that most forecasts assumed the company could reduce the penalty bank fees even without the fundraising, but conceded the plans were a positive development. SG Securities analyst Anthony de Larrinaga said the move could help extract a better value for Virgin Radio.

When the news emerged, SMG shares dropped as much as 20 per cent as shareholders mulled the prospect of firing more money into a company which has seen its share price collapse in recent years, or face their holding being diluted by two-thirds. However it recovered to close up 1.5p at 30p.