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%.
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.