Neil Woodford is the largest shareholder participating in an emergency rights issue for ailing online mattress retailer, which could see his stake in the company double and require him to seek a waiver from a takeover bid for the business.
An RNS announcement on Thursday said Woodford was planning on ponying up to £8m to bail out Eve Sleep.
The deal will see Woodford acquire roughly 41.77 million shares, representing 29.91% of the voting rights of the company. Added to his existing 31.67 million shares this will take his total stake in the group up to 42%.
Takeover waiver
In order for Woodford to subscribe to the full £8m worth of shares, he would need to be granted a ‘Rule 9 Takeover waiver’ which would give him permission to ‘whitewash’ or temporarily breach investment limits set by the UK takeover code.
The UK’s takeover code states that if a company or individual shareholder owns between 30% and 50% of the shares in another company, it must make an offer to purchase the remaining shares.
Eve Sleep said on Thursday it is in discussions with a number of other investors and it is possible Woodford’s position in the fundraise could be scaled back.
This is the second time Woodford has sought a ‘whitewash’ to save a floundering company this year.
Back in March he did the same thing for smart pallet developer RM2 International, boosting his stake in the group to 67.8%.
As at 18 June he still had 64.4% of the company’s shares, as well as 48.2% of the total voting rights spread out across the Woodford Equity Income fund, Omnis Income & Growth fund and Woodford Patient Capital Trust.
Channel 4 among other investors
In addition to Woodford’s contribution Eve Sleep chairman Paul Pindar has also pledged £1m, while the group’s CEO James Sturrock has agreed to chip in £20,000.
Channel 4, which provides advertising services to the mattress retailer and is an existing investor, has said it will commit £900,000.
All of the fundraising participants have agreed to buy new stock at 10p per share, representing a 30% discount from Eve Sleep’s share price at close of play on Wednesday.
Markets responded poorly to the news, sending Eve Sleep’s shares down 17.35% on Thursday morning.
When the group had first announced the fundraising in the mattress retailer had stated that existing shareholders would buy in at a price that is “significantly higher than the prevailing share price”.
The news of the Eve Sleep rights issue comes as the star manager’s flagship equity income fund has dropped below £5bn and is now halve of its peak value of £10.3bn.
Woodford Equity Income attracted £1.6bn within its first month of launching in June 2014 and by the end of the year was chasing £4bn.
Eve Sleep was 0.09% of the Woodford Equity Income fund as at 31 October. It also appears in some of the segregated mandates he runs.
