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Should shareholders get involved with Capita’s £701m rights issue?
For long suffering investors in outsourcer Capita (CPI), being asked to buy more shares in the company may not be music to their ears.
However, the banks acting as joint bookrunners on a planned rights issue, Citigroup and Goldman Sachs, are both fully underwriting the fundraise.
This means that even if investors aren’t tempted by the heavily discounted price of 70p a share (the current share price is 180p) the banks will buy any outstanding shares.
This in effect guarantees Capita its money which works out as £662m after costs.
The rights issue will provide £220m to fund the company’s transformation plan, including £150m which is earmarked to achieve annualised cost savings of £175m by 2020.
Capita is using £150m for pre-payment of US private placement notes and the remaining balance will be used to support its investment programme.
Already on board with Lewis’s vision for Capita are shareholders Woodford and Investec. These plans include achieving £200m of free cash flow and double digit profit margins by 2020.
Chief executive Jon Lewis is also looking to streamline the business which he had previously complained was ‘too complex’. (DS)