By Yadarisa Shabong
(Reuters) – Compass Group shares dropped more than 10% on Tuesday as the world’s biggest caterer sought to raise 2 billion pounds ($2.5 billion) in a share sale to reduce debt and help it cope with the coronavirus crisis.
Bookrunners for the share placing said the British company had offers from investors at between 1,000 and 1,050 pence per share, with the process set to conclude around 1200 GMT.
That is well below Monday’s closing price of 1,153.5 pence, and pushed the stock down as much as 11% to its lowest since March, and down more than 40% on the year.
“The business could probably have withstood a fair while longer in the pressure cooker of the coronavirus crisis without going cap in hand to shareholders,” said Russ Mould, investment director at AJ Bell.
Reporting results alongside the share issue, Compass said underlying operating profit for the six months to the end of March dropped 10% to 854 million pounds, while revenue grew just 1.6% to 12.6 billion pounds.
Compass has already scrapped its dividend and drawn credit from the British government’s COVID Corporate Finance Facility.
Even with further cuts worth up to 500 million pounds a month, the company said it was still burning 100 million to 150 million pounds a month.
“We decided that now the equity placing is really the last piece of the puzzle … to give us the resilience to weather whatever this crisis looks like over the next 12 to 18 months,” Chief Executive Dominic Blakemore told Reuters.
Longer periods of physical distancing, school closures and working from home threaten to reduce the number of customers Compass serves.
“It may be a slightly smaller business, our job is to ensure that we’ve got a profitable smaller business,” the CEO said.
Blakemore said raising capital was not related to any merger and acquisition plan, but that Compass would “participate if returns are acceptable” in any opportunities.
He said raising equity was more about reducing debt than addressing liquidity. Compass had net debt of 4.88 billion pounds, while liquidity after the fundraising would be around 5 billion pounds, he said.
Goldman Sachs, Morgan Stanley and Barclays are joint global co-ordinators and joint bookrunners on the placing.
($1 = 0.8169 pounds)
(Reporting by Yadarisa Shabong in Bengaluru; Editing by Patrick Graham, Edmund Blair and Mark Potter)