The Quarto Group is to raise £13.9m through a share offer, following a slowdown in its business coupled with financial challenges arising from its bank debt. The offer is to go out to all shareholders, but has been underwritten by two shareholder groups, including one representing current c.e.o. CK Lau and the second Italian printers the Giunti family. If both take up the full offer, they will effectively control close to 70% of the business, though Quarto insisted they were not acting "in concert".
The illustrated book publisher and distribution group plans to raise £13.9m through issuing 20,444,550 New Common Shares at 68p. The company will send qualifying shareholders a prospectus outlining the situation with a special meeting to be held on 31st January in New Broad Street, central London. Quarto said the offer was "fully underwritten by two groups of the company's shareholders - namely the Lau Underwriter and the Giunti Parties". If the two groups subscribe to additional shares, then Lau will end up owning 49.25% of the enlarged share capital.
In a statement, Quarto said as of 30th November 2019 the group owes $54m to the bank and the group owes $13m in loans. "This figure is significantly higher than expected for a company of the company's size and profitability and the board considers that this debt presents a risk to the future profitability of the Group and hampers the ability of the company to make dividend payments or other returns to shareholders," said Quarto.
The new step will "invigorate the group's balance sheet and reduce the group's reliance on bank debt ", it said. If the company fails to raise the money from the open offer, it will need to repay its debt facilities by 31st August 2020.
Pavilion Books owner and publisher Polly Powell, who recently became an advisor to Quarto's Lau, said: "This great move will help to tackle the bank debt that has been holding the company back, so we can concentrate on the business of publishing good books. We look forward very much to working with the Giunti family [Italian printers]."
The company had described its results for the first half of 2019 as "encouraging" in August after global results showed group revenue edged up to $56.4m and losses declined 75% compared to the same period in 2018. In 2018 there were also additional financial challenges prompting the company to downsize and close seven of its 40 imprints. The company has been on a rollercoaster for sometime partly due to the high levels of debt taken on during the reign of previous c.e.o. Laurence Orbach; immediate past c.e.o. Marcus Leaver had tried to pay down the debt, including exploring raising money through a share offer, but this was voted down by the board at the time, and Leaver subsequently left the business. Its current management had steadied the business, with a commitment made to its banks to reduce the debt over time; however this was contingent on the group performing in line with expectations.