Aston Martin Lagonda is bringing in new shareholders and tapping old ones for fresh cash to stave off a liquidity crisis, after the global slowdown last year threatened to put it back into bankruptcy.
As a result, the company is pushing further than ever into the rarefied world of Formula 1 racing, a move that will add extra spice to the financial outlook for anyone who thinks the stock hasn’t been volatile enough since it listed two years ago.
The company intends to raise a total of 500 million pounds ($626 million), of which 182 million will be injected a consortium led by Canadian billionaire Lawrence Stroll, a co-owner of the Racing Point Formula 1 team and all-round petrolhead. The consortium is also providing an extra 55 million pounds in short-term working capital.
Stroll is also putting the Aston Martin name on the Racing Point F1 team that he co-owns (and where his son Lance happens to be one of the drivers) from next season. As such it will end sponsorship of Red Bull, which had collaborated with AML on the Valhalla and other cars. AML will get a stake in the team under the agreement, which will run initially for 10 years.
The rest of the cash will come through a one-for-five rights issue priced at 4 pounds per share. For the existing private equity owners, who will still control over 50% of the company after the deal, this represents little more than putting back some of the money they took out through the IPO process. For free shareholders, already nursing losses of some 75% on their investment, it adds insult to injury.
Among other things, the money will save AML having to draw down a 100 million-pound credit line at loan-shark rates that it had agreed late last year.
Aston Martin shares, which were pricing in a high probability of bankruptcy, leaped 25% on the news.
Talks with Stroll had been widely trailed in recent weeks and aren’t the surprise that the share price reaction would suggest. However, what is interesting is the terms Stroll has exacted. The company is pushing back development of electric vehicles under the Lagonda brand to 2025 (having failed to persuade China’s Geely to join the party) and will also defer launch of its Valhalla model to 2022. Those moves will also take the near-term strain off the company’s cash flow, allowing it to focus on the launch of the DBX SUV – which is still slated to go ahead in the second quarter.
Stroll will replace Penny Hughes as chairman.
Somewhat lost in the noise of the deal was the update that the fourth quarter of 2019 didn’t get any better for the company, which noted that it had continued to experience “lower sales, higher selling costs and lower margins versus expectations.”
The road ahead may be more glamorous, and the chance of getting there in one piece slightly higher, but you still wouldn’t want to be starting the journey from here.