THE STEELMAKER Corus has trampled on the pre-emption rights of its shareholders with yesterday’s hybrid share placing-cum-rights issue. But it is the hedge funds, who have been frantically sellingthe stock short in the past few months in the hope of making a quick killing, that will feel the greatest pain.
Share placings that double as rights issues have been tried before – but never on a scale such as this. The offer will net Corus pounds 291m once Lazard and Cazenove have collected their pounds 12m in underwriting fees – which is not bad for the 60 minutes it took yesterday to place the stock.
In many ways, the answer that Corus has come up with to bridge its funding gap is an elegant one. By circumventing the traditional deeply-discounted rights issue approach and timetable, the company gets its money in three weeks instead of six. Moreover, it has been able to price the offer at a discount of just 10 per cent, thereby limiting the number of shares it must issue and the potential dilution for those who choose not to subscribe.
In addition, Corus avoids the unseemly scramble of shareholders rushing to sell their nil-paid rights in the market and thereby undermining the capital-raising exercise – the trap which Royal & Sun so nearly fell into with its own discounted rights issue. The clear losers will be the hedge funds who gambled on Corus being forced to follow the same route as Royal & Sun, and who will now be forced to buy shares at high prices in order to cover their short positions.
Unfortunately, wider shareholder rights have also been infringed. Without any nil-paid rights to sell, existing investors in Corus have no choice but to take up their entitlement or watch themselves being diluted without any gain whatsoever. All in all, then, a neat if sharp piece of financial engineering which plugs the hole in Corus’s balance sheet while the company sorts out its loss-making UK steels business. Whether it is the answer to the company’s longer- term survival is anyone’s guess. Given past experience of Corus, it would perhaps be unwise to raise expectations very much.
jeremy.warner@independent.co.uk
