Cookson, the industrial materials group, has joined the rush to raise capital with a call on shareholders for £240m with a heavyweight, but deeply-discounted, rights issue at the same time as announcing it is cutting 1,250 jobs.
The company, which makes more than 40pc of its profit from the steel industry, said it was dealing with an “unprecedented downturn” in the market and would be closing its factory in Newmiles, Scotland with the loss of 180 jobs. Five other factories are being closed down, in Belgium, Germany, the US and Mexico. The group currently employs about 17,000 people. Under the terms of the rights issue, which is fully underwritten by JP Morgan and Merill Lynch, shareholders are being offered 12 new shares, for every existing share held, at 10p each. The shares plunged 47pc to 45p in early trading before recovering strongly. Cookson is particularly exposed to the steel and automotive industries, which have suffered a significant decline in sales over the past few months. The company, which also supplies products used to make glass and iron is the latest British firm to seek money from shareholders as the global economic downturn restricts the availability of credit. Chief executive Nick Salmon said he hoped the rights issue and restructuring would reduce costs and debt, which currently stands at about £732m.
“Steel production has fallen heavily over the past few months and we are now experiencing a severe downturn,” he said. “Alongside these measures, we believe that an equity fund-raising at this early stage creates a suitable capital structure from which the company can move forward from a position of greater strength and flexibility in the current environment.” Cookson’s debt increased after the £497m acquisition of rival Foseco in 2007. It warned that trading conditions in the first quarter would be no better than the fourth quarter of last year, but indicated they were likely to improve slowly through the second quarter. The company has suspended dividend payments until its markets recover, and forecast that profit before tax was at least £174m in 2008, more than the £150m reported in 2007. Analysts at Bank of America -Merril Lynch said the rights issue “would resolve the problems of covenants being breached in a deep cyclical downturn”, and would cover all refinancing commitments through to the end of next year.
