It’s been almost two months now since our last update on the never ending, but always entertaining, saga of Stroll’s Aston Martin. I thought now might be a good time to do a quick catch up as Aston Martin has just completed the £653m Equity Raise that was announced on July 15th (see: Aston Martin’s Equity Raise) A more in-depth look at Aston Martin will follow after they release their Q3 results in the coming 3-4 weeks. For this catch up, the intent is to focus on two areas: the Equity Raise and the Press’ evolving treatment of Aston Martin that it seems to have kicked off.
£653m Equity Raise
On September 29th, Stroll announced:
“I am delighted that we have successfully completed this transformational capital raise which significantly strengthens our financial position and enhances our pathway to becoming sustainably free cash flow positive. Along with Amedeo and the leadership team, we are fully focused on unlocking the significant shareholder value creation potential of this ultra-luxury British performance brand.
“I would like to thank our existing shareholders for their continued support in reaching this important milestone. The Yew Tree Consortium’s shareholding now stands at 19% following its full participation in the rights issue and additional investment through the capital raise. I would also like to thank Mercedes-Benz for their investment and the strong long-term partnership we have created.
In addition, I would like to thank The Public Investment Fund, one of the leading global investment funds, which has become a new anchor shareholder with a 18.7% stake in the Company. Finally, I would like to welcome Geely Holding, who have today announced that they have become a shareholder.”
Now there is a lot to unpack here. Starting with the equity raise, It’s actually the fourth raise in the last two and a half years starting with:
The four raises total up to of £1.46 billion. As a reference point on how these four raises have transformed the business in the eyes of the investment community, as of Oct 11, Aston Martin’s market cap was £650 million. This is slightly less than the £653 million AML just extracted from its long-suffering shareholders. In terms of Stroll’s comments about “significant shareholder value creation”, AML’s stock price has declined by 92% during Stroll’s tenure as Chairman. As a reference point on how Stroll has personally done on the AML investment, Yew Tree (the Stroll lead consortium) has invested approximately £425 million for its current 19% stake in AML. Yew Trees stake has a current market value of £123 million.
Coming out of this Equity Raise, AML now has two new major shareholders. PIF, which has just invested an estimated £174 million in AML for a 18.7% stake currently worth £122 million and, as a bit of surprise, Geely Holding with a 7.6% shareholding. Stroll did reference Geely at the very end of the September 29th announcement with all the glee and enthusiasm of a man who just found himself seated next to his ex-wife’s divorce lawyer on a long haul flight. Geely buying in was both a surprise and highly interesting as they had made a £1.3 bil. offer for AML back in July that Stroll slapped down rather unceremoniously. The offer consisted of £203 million cash followed by a £1.1 bil. underwritten rights issue of which Geely would have invested an additional £300 mil. The official statement from AML rejecting the offer stated:
“markedly overestimated the Company’s new equity capital requirements, would have been heavily dilutive for existing shareholders”
Given AML’s current situation and portfolio, I’m not sure it’s even possible to underestimate AMLs capital requirements. In fact, £1.3 bil. that Geely put on the table is much closer to what AML really needs to be able to pay down its current gross debt load of £1.362 bil. and payables of £843 mil. to a level that is much more manageable based on AML’s cash flow (see: Aston Martin’s 1st Half 2022 Results). This is also the first time I have ever heard AML being the least bit concerned on diluting existing shareholders considering they have done it multiple times in the last 2 ½ years. Geely clearly wants a seat at the table when either AML topples into an 8th bankruptcy or Stroll finally decides to cut his losses and run. I would expect Geely to raise its shareholding to over 10% and demand a Board seat in the not too distant future.
As for why Stroll rejected the original Geely offer in July, my guess is it has a lot to do with the myth Stroll has spun around the “works” Aston Martin F1 team. Geely would likely have much better uses for the £21 mil. fee AML is paying Stroll’s back of the grid privately owned racing team to paint their F1 car green and stick the Aston Martin name on it. As Stroll has also explicitly stated that Aston Martin Racing was able to sign “hundreds and hundreds of millions of dollars of sponsorship” off the back of the name change from Racing Point to Aston Martin Racing, this would put those sponsorships at risk.
So why if Geely is getting the same warm welcome that Mitch McConnell could expect at a Trump rally, is Mercedes-Benz continued to be embraced. I believe it comes down to a few key reasons:
For Mercedes, they are likely one of the few suppliers that is actually profiting from a relationship with AML/AMR. They are certainly getting paid on the racing side as an engine supplier, they would be first in line to get paid for supplying powertrains on the road car side of the business, and the majority of Mercedes’ shareholding in AML was gifted to them.
As for what AML will do with this latest £653 million “transformational” raise, back in July when it was first announced, AML stated:
On the first of these, AML is retiring $40.2 mil. in Senior Secured Notes and $143.8 mil. Second Lien Notes. When converted to GBP this equates to £185 mil. or 28% of the £653 mil. raised. It’s a far cry from half and only reduces Gross Debt from £1.36 bil. to around £1.18 bil. While this will reduce the semiannual interest payments slightly, its nowhere near the level of reduction needed to get to a longer term cash flow positive position based on current sales levels. The answer to why they are not using more of the cash to reduce debt is in the second of the statements, AML clearly needs more of the funds to provide a “liquidity cushion”. In the 1st half of 2022, Aston Martin proceeded to burn through £248 mil. of cash and blow up their payables by £122 mil. After paying off the £185 mil. in notes, this would leave £468 mil. of the £653 mil. just raised. Taking the £156 mil. in cash on hand at the end of June, add in the £468 mil. remaining of from the recent raise gives you a total of £624 mil. Looking at the 1st half run rates on cash and payables, the reason more debt wasn’t paid off is AML will likely need most, if not all, of the £624 mil. just to keep the lights on for the next 12-18 months. I’m not sure what type of equity raise comes after “transformational”, but I guess we will find out around this time next year.
Moving onto the second topic of the mainstream Press’ evolving treatment of Aston Martin, the tone has certainly changed dramatically to the more critical in the last several months. While Aston Martin has been a bit of a financial dumpster fire for several years now, it’s only recently that the mainstream British Press has been starting to take a more critical tone. On one level, it is understandable, Aston Martin is an iconic British Brand, and no one wants to be the one who pushed it over the edge. However, it’s a bit like the Prince Andrew situation, it was fairly well known for years that he is a rather thick, odious twit but out of respect for the monarchy, no one called him out as such until the evidence became so overwhelming it couldn’t be ignored. And that’s where we are now with Aston Martin.
Several recent headlines that you would not have seen a year ago:
The Telegraph: Aston Martin shares fall to record low after fundraising push falls flat
The Sunday Times: Italian takes charge with brakes on
Financial Times: Aston Martin faces £150mn lawsuit from dealers over Valkyrie hypercar
The last of these is probably the most interesting. The legal battle between Aston Martin and Nebula has actually been going on for over a year now. As a bit of background, it was Nebula that originally conceived the Valkyrie idea and brought it to AML (see: The Saga of the Valkyrie for more details). In June 2021, with no warning AML blew up the agreement with Nebula (my guess is to get out of having to pay royalties to Nebula on all mid engine AML cars for 10 years) and the dispute has been winding its way through the court system. To date Nebula has prevailed in all the court rulings and they are now in binding arbitration. Nebula’s claim is in the £150-250 mil. range, and from what I have heard from a number of industry insiders, they would appear to have a very strong case. The fact that its finally getting some attention in the British Press would seem to indicate that AML is no longer going to be coddled.
Back in early May, I summarized AML’s position as teetering on the brink of disaster. At this point, they look to have bought themselves another year to turn things around. A good indicator on how this will go should appear shortly when AML releases their Q 3 results. However perhaps it is the analysts at Redburn who summed it up the best:
“Our fundamental view of the company remains unchanged whereby we remain concerned over its ability to sustainably generate” free cash flow
And to think it was only a year ago that Stroll declared in an interview with CNBC:
“The risks are behind us. We have tremendous growth in front of us and a Formula 1 team to market it.”
Note: I do not and have never owned any AML shares.
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