Longhorn stock tumbles as firm targets Sh530m in cash call

The share price of Longhorn Publishers has fallen to lows matching its previously discounted rights issue offer price of Sh4.2 per share, potentially dampening investor interest in the Sh530 million cash call.

The Nairobi Securities Exchange-listed firm had calculated that the rights issue offer represented an 18 per cent discount on the stock’s average trading price of Sh5.12 in the six months to March 22.

Companies raising cash from existing shareholders have traditionally offered new shares at a discount to prevailing market prices to encourage investor participation.

Longhorn’s share price decline last week has, however, given investors an option of buying its shares in the open market at the same price, with cash changing hands among traders and not going to the company.

A potential further price fall will make the rights unattractive, hurting the fundraising plan that will close on May 6.

Longhorn’s significant shareholder Centum Investment could however benefit from lack of participation by some investors, with the company having undertaken to buy up to half of all the 126.1 million shares to be offered in the rights issue.

Centum, which holds a 31.25 per cent stake in the publisher, has set aside over Sh390 million to participate in the cash call with an aim of raising its ownership to more than 51 per cent.

READ: Centum sets aside Sh390m to buy majority stake in Longhorn

The move is expected to see the investment firm overtake founder shareholder Francis Nyammo whose equity stands at 34.89 per cent.

“Centum has declared … they intend to take up their rights and take up at least 50 per cent of total available rights,” Longhorn said in a statement.

“This might take their shareholding to above 51 per cent, but the shareholder has categorically stated they have no intention to take over the company.”

The investment firm is entitled to buy 39.4 million shares in the rights issue at the offer price of Sh4.2 per share, placing its minimum participation at Sh165.6 million. Raising its stake to 51 per cent in the publisher would require buying an additional 53.8 million shares, raising its total investment to Sh391.6 million.

Centum says it is ready to take up an unlimited number of shares from investors who will not participate in the cash call, indicating that its ownership could rise above the 51 per cent level.

Chief executive James Mworia recently told Business Daily that Centum will take up any shares left by other investors, adding that the investment firm is confident about Longhorn’s future prospects.

Longhorn said Centum has committed not to take over the company, meaning it will not make an offer to buy out minority shareholders after raising its stake.

The publisher’s stock touched all-times lows of Sh3.7 last year after cutting its dividend payout amid weaker results for the full year ended June 2015.

Longhorn says it will prioritise debt payment and boosting working capital in using proceeds from the rights issue.

The publisher owes Sh100 million to Nabo Capital, a subsidiary of Centum which deals in asset management for institutions and high-net-worth clients.