Alok Malpani and Sons is a high-tech group in financial distress. Its key financials are as follows:

(in €m)

2008

2009

2010

Sales

8026

5208

3018

Operating income

130

(168)

(loo)

Financial expense

(330)

(144)

(62)

Restructuring costs

(1020)

(314)

Net income

(1220)

(626)

(162)

Fixed assets

122

72

Working capital

614

330

Shareholders” equity

(620)

(784)

Subordinated debt

616

616

Senior debt

740

570

The Alok Malpani and Sons shares are trading at €24. The company”s share capital is divided into 8 910 000 shares. The value of the senior debt can be estimated at half of its face value and the value of the subordinated debt at 21% of its face value.

The following rescue plan has been submitted to all of the investors in the company:

  • Shareholder subscription to a capital increase of 15 500 000 new shares at a price of €20 per share, totalling €310m.
  • Partial repayment and conversion of the subordinated debt into capital: issue of 3 850 000 new shares and repayment of €36.96m.
  • Waiver of €160m of debts by senior creditors. In exchange, 1 250 000 warrants entitling holders to subscribe after 3 years to 1 share per warrant at a price of €25 per share. The value of these warrants is estimated at €4 per warrant. The proceeds of the capital increase that are left over after partial repayment of the subordinated debt will be used to repay the senior creditors.

(a) What is your view of the financial health of this company?

(b) Calculate the value of the different securities used to finance the capital employed.

(c) Calculate how much the various lenders will have before and after the rescue plan. Assume the negotiated amount of the face value of the senior debt will be 80% after the plan.

(d) Who are the key beneficiaries of this plan?