Connells has reconfirmed its takeover bid for Countrywide but warned there would be no “quick and easy fix” to turn around the company.
Connells has stuck by its offer to acquire Countrywide for 250p per share. However, after due diligence work on the business, Connells has revealed that “significant capital investment is required”, which would be “in excess of the levels envisaged under the Alchemy proposal”.
Alchemy Partners planned to invest £90m into Countrywide earlier this year to take a majority stake in the business.
Connells said even with a £90m equity injection, Countrywide would remain “exposed to material financing costs and risks”.
Connells said that Countrywide faces a number of “significant risks as a standalone business” and listed a range of challenges to the business.
Connells said Countrywide has potential to enter into administration without a “significant” capital investment to reduce its net debt and “lessen its exposure” to lenders.
The company also added that Countrywide needs long-term “substantial and sustained investment” after having underinvested in technology, branch network and people. This, combined with “aggressive cost cutting”, has led to its decreased market share, Connells said, adding that investment needed to place the business back on a solid footing will “reduce Countrywide’s standalone profitability and cash flow for at least the next few years”.
Connells added that other risks include the lack of clarity over who would lead Countrywide as a standalone business, the “ongoing financing risks and costs” it faces even after a recapitalisation, battling against a “highly competitive market” with an ongoing shift to online, and the prospect of facing “difficult and uncertain” market conditions as a standalone business.
In reference to press speculation that Countrywide could embark on a strategy of disposals to reduce its bank debt, Connells said it did not believe an “asset-stripping strategy would create value for shareholders or be good for Countrywide’s employees, customers or other stakeholders”.
Connells said that in light of these risks, its takeover bid would offer “significant and tangible upside” to Countrywide shareholders, which would be “far more attractive than the theoretical, distant and risky prospect of potential future benefits under a standalone strategy”.
The cash offer represents a value of £82.1m for the ordinary share capital and an enterprise value of £172.3m for Countrywide.
Connells chief executive David Livesey said: “Countrywide shareholders have repeatedly been promised jam tomorrow and it has never been delivered. There is no quick and easy fix for Countrywide. Turning the business around, especially in unpredictable market conditions, will be a difficult, expensive and lengthy process.
“Countrywide needs new ownership, not yet another speculative scheme that is based on hope rather than experience. Our proposal gives Countrywide shareholders significant immediate upside in cash, at a 72% premium to the undisturbed price, with none of the downside risks of remaining independent.”
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