MQ CARRIES OUT A GUARANTEED RIGHTS ISSUE OF APPROXIMATELY SEK 250 MILLION AND MAKES A WRITE-DOWN OF SEK 192 MILLION, WHILE THE SUBSIDIARY JOY FILES FOR BANKRUPTCY
Today, the Board of MQ Holding AB (”MQ” or "the Company”) has, subject to the approval by the Extraordinary General Meeting, decided on a fully guaranteed rights issue of shares of approximately SEK 250 million (the "Rights Issue"). Investment AB Öresund (”Öresund”), Swedbank Robur and other major shareholders of the Company, as well as certain members of the Board and the executive management, have entered into subscription commitments regarding their respective pro rata share in the Rights Issue. At the same, time MQ focuses on the parts of the business that are considered to be profitable and that have positive cash flows and the subsidiary Joy Shop AB ("Joy") files for bankruptcy.
- The decision on the Rights Issue of approximately SEK 250 million, before Rights Issue costs, is part of an agreement with the Company's lending bank, DNB. The proceeds from the Rights Issue is partly intended to be used to reduce the Group's existing indebtedness and to provide access to continued necessary loan financing and also to provide opportunity to intensify the work with continued renewal of the brand positioning of MQ, as well as to focus on MarQet combined with further streamlining of the Group’s operations.
- Several of MQ’s largest shareholders, including Öresund, Swedbank Robur, members of the Qviberg family, as well as certain members of the Company’s Board and executive management, among others the Company's Chairman Claes-Göran Sylvén and CEO Ingvar Larsson, who together represent approximately 43.4 percent of the total number of shares and votes in the Company, have undertaken to subscribe for their respective pro rata share of the Rights Issue, corresponding to approximately SEK 108.5 million.
- In addition, members of the Qviberg family, the Company's Chairman Claes-Göran Sylvén, CEO Ingvar Larsson, and a number of additional guarantors have undertaken to guarantee the remaining part of the Rights Issue not covered by subscription commitments. The Rights Issue is thereby fully covered by subscription commitments and guarantee undertakings.
- Joy's bankruptcy petition is based on that Joy is insolvent and unable to reverse the negative development within reasonable time. For some time now, Joy’s results have been negative and given the financial situation the MQ Group find itself in, MQ cannot see any possibilities for a further investment in Joy.
- In parallel, MQ has decided to make a write-down of intangible assets, which entails non-recurring costs SEK 192 million, including the write-down of the book value of the shares in the subsidiary Joy. The non cash flow write-down burdens the second quarter 2019/2020.
- The record date for allotment of subscription rights in the Rights Issue is 23 April 2020 and the subscription period is expected to run from and including 27 April 2020 until and including 11 May 2020.
- The complete terms and conditions for the Rights Issue, including the subscription price and number of new shares, will be determined by the Board and made public no later than 16 April 2020.
- The Board's resolution on the Rights Issue is conditional on the approval by Extraordinary General Meeting which is intended to be held on 20 April 2020. Notice to attend the Extraordinary General Meeting will be made public by way of a separate press release today.
- Shareholders together representing approximately 49.2 percent of the total number of shares and votes in the Company, have undertaken to vote in favour of the Rights Issue at the Extraordinary General Meeting.
Ingvar Larsson, President and CEO of MQ, comments:
”We focus on the parts of the business that show profitability. Through the rights issue and long-term credit financing, the groundwork has been laid and the renewal of MQ to MarQet has begun. A journey that is about taking advantage of all the best that MQ has to offer and through a gradual transformation allow existing as well as new customers to experience all the new things in MarQet”
Claes-Göran Sylvén, Chairman of the Board of MQ, comments:
”It is a message of strength to be able to carry out a rights issue in a very challenging market with difficult conditions, which shows that there is great confidence in our business and the repositioning that the company has begun. In a challenging time for the industry, we believe in the long-term of our strategy and further development of our e-commerce business.”
Background and reasons for the Rights Issue
MQ is a well established Swedish fashion retailer, offering women's and men's fashion in own stores and e-commerce. In 2020, all MQ's stores will gradually be transformed into concept stores under the name MarQet, which includes stores all over Sweden in attractive locations. As of 29 February 2020, the MQ Group included 119 MarQet stores and 40 Joy stores, e-commerce and a customer club with approximately 1,000,000 members. The head office is located in Gothenburg and the Company has a production office in Shanghai.
The Company's strategy is to be Sweden's largest concept store chain with qualitative fashion for today's modern working life. The Company owns several well-known brands with a strong position in the market, which in combination with relevant attractive external brands is an important basis of the strategy. Growth is achieved through the digital business that, together with a broad physical presence, gives customers a shopping experience that is personalized, inspiring and flexible. High availability with increased digital presence is fundamental to the Company's growth.
Since the fall of 2018, the Company has worked with several growth-promoting initiatives and strengthened the management team with a number of skills-enhancing recruits. The review of the Company's operations has identified the factors that are considered to have caused the MQ Group's negative operational development in recent years. Since the start of the structural action program in February 2019, the Company has closed 14 unprofitable stores, moved Joy's headquarters to MQ's existing premises and also made cost savings in both staff and rents. The structural action program has proceeded according to plan and is expected to give a total profit-enhancing effect of SEK 50 million during the current financial year.
The proposed Rights Issue of approximately SEK 250 million, with a deduction for Rights Issue costs of approximately SEK 30 million, will handle several different initiatives aimed at making the Company profitable. All in all, this means that in the long term, MQ can create value for the Company's shareholders and other stakeholders. Some of the initiatives to be taken to move the Company into the future are presented below:
- The Company shall reduce its existing bank debt in the order of SEK 150 million in connection with the guaranteed Rights Issue in order to reduce risk and debt.
- The subsidiary Joy applies for bankruptcy, which is expected to lead to cash flow affecting settlement costs for MQ in the order of SEK 25 million, which will be handled through the proceeds from the Rights Issue.
- The Rights Issue shall also give the Company a financial maneuverability to continue to realize the growth-promoting initiatives taken to increase the Company's profitability and competitiveness.
- The Company's future growth is expected to come from digital growth, and thus investments in e-commerce will continue. The development of e-commerce will improve the shopping experience for the customers with increased availability, increased service level, a harmonized supply and also offer more delivery options for the customers.
- The Company will continue to focus on profitability, which means closing down the stores that are not profitable and instead invest in the profitable stores. One of the Company's strengths is the nationwide store presence in attractive locations and in order to be Sweden's largest concept store chain, the stores need to be constantly renewed.
In connection with the preparations of the Rights Issue, an agreement regarding an extension of existing long-term credit financing up to SEK 145 million with the Company’s lending bank, DNB, has been reached, conditional upon completion of the Rights Issue. The issue proceeds will, as indicated above, partly be used to reduce the Company's existing bank debt. The new loan agreement, which has a duration of three years, is designed to create favourable conditions for MQ to carry out the necessary profitability enhancing measures.
Declaration of bankruptcy for the Company’s subsidiary Joy
From MQ’s previous financial reports it is evident that Joy's financial development and profitability has been challenging for quite some time. MQ deems Joy's liquidity position to be unsustainable for the Group and given the circumstances, there is no other realistic alternative for Joy other than to file for bankruptcy. On this basis, the Board of Joy has today decided to file for bankruptcy. The application will be filed in Gothenburg District Court (Sw. Göteborgs Tingsrätt) during today. Joy has proposed Lars-Henrik Andersson, member of the Swedish Bar Association, from the law firm Cirio, as insolvency administrator. Cash flow affecting costs of liquidation for MQ incurred by the order of bankruptcy are expected in the order of SEK 25 million, which will be handled through the proceeds from the Rights Issue.
Ingvar Larsson, President and CEO of MQ, comments:
"Of course, this is a very sad decision to make, especially as we lately have seen an increase in sales of the spring collections which shows potential in parts of the business. Despite of extensive measures of improvement, this has unfortunately not been enough, which is why we now are forced to make this decision."
Write-down of intangible assets
Today, the Board of MQ has decided to write down the book value of intangible assets SEK 147 million in total. Additional information about the write-down and about what intangible assets it is attributable to is stated in the Company's interim report that is made public today. In addition, a write-down of the book value of the shares in the subsidiary Joy of SEK 45 million is made as result of Joy filing for bankruptcy. A final assessment of the non-cash flow amount which the shares in the subsidiary Joy shall be written down with, will be made during the third quarter. The non-cash flow affecting write-down of in total SEK 192 million decided today will burden the result for the second quarter 2019/2020.
The value of the group's intangible assets is reassessed regularly. The assessment made in connection with the interim report resulted in the Board's decision today of write-down.
The Rights Issue
The Board of Directors of the Company has today resolved, subject to the approval of the Extraordinary General Meeting, which is intended to be held on 20 April 2020, to carry out a new share issue of SEK 250 million with preferential rights for the Company's shareholders. The record date for determining which shareholders are entitled to subscribe for shares with preferential rights is 23 April 2020. It will also be possible to subscribe for shares without preferential rights.
At latest by 16 April 2020, the Board of Directors will determine the maximum amount by which the Company's share capital can be increased, the highest number of new shares to be issued and hence the number of new shares each existing share entitles to subscribe for, and the amount to be paid for each new share. The Board of Directors intends that the subscription price shall be determined with a discount to the Company's average share price on Nasdaq Stockholm during a certain period of time before the announcement of the terms and conditions.
The subscription period is expected to run from and including 27 April 2020 to and including 11 May 2020. Trading in subscription rights is expected to continue on Nasdaq Stockholm between 27 April 2020 and 7 May 2020. The Board shall have the right to extend the subscription period and the time within which payment is to be made.
Subscription commitments and guarantee undertakings
Several of MQ's largest shareholders, including Öresund, Swedbank Robur, members of the Qviberg family, as well as some of the Company's board members and senior executives, among others, the Company's Chairman Claes-Göran Sylvén and CEO Ingvar Larsson, who together represent approximately 43.4 percent of the total number of shares and votes in the Company, have undertaken to subscribe for their respective pro rata share in the Rights Issue, corresponding to a total of SEK 108.5 million. In addition, members of the Qviberg family, the Company's Chairman Claes-Göran Sylvén, CEO Ingvar Larsson and a number of additional guarantors have entered into guarantee undertakings with the Company regarding the part of the Rights Issue that is not covered by subscription commitments. In the event that the Rights Issue is not fully subscribed through exercise of subscription rights or through subscription of shares without preferential right, allotment of shares amounting to SEK 5 million will first be made to the Company's Chairman Claes-Göran Sylvén through his guarantee undertaking regarding the Rights Issue and thereafter the number of shares that remains in order for the Rights Issue to be fully subscribed will be distributed among the other guarantors in the Rights Issue, pro rata in relation to the amount that each guarantor has guaranteed.
The Rights Issue is hence fully covered by subscription commitments and guarantee undertakings. For the guarantee undertakings, a compensation of 10 percent of the guaranteed amount will be paid to the guarantors.
Extraordinary General Meeting
The Rights Issue is conditional on the approval by an Extraordinary General Meeting in the Company. The Rights Issue requires amendments to the Company’s articles of association, which means that the Extraordinary General Meeting’s decision requires approval by a 2/3 majority. Shareholders together representing approximately 49.2 percent of the total number of shares and votes in the Company, have undertaken to vote in favour of the Rights Issue at the Extraordinary General Meeting.
The Extraordinary General Meeting will be held on 20 April 2020 at 2 p.m. CET in the Company’s offices in Gothenburg, Sankt Eriksgatan 5, Sweden. Notice to attend the Extraordinary General Meeting will be made public by way of a separate press release today and is available on the Company's website http://ir.mq.se.
Preliminary timetable for the rights issue (all dates relate to 2020)
|No later than 16 April||Complete terms and conditions of the Rights Issue are made public|
|20 April||Extraordinary general meeting to approve the Rights Issue resolved by the Board|
|21 April||Last day of trading in the Company’s shares including preferential rights to participate in the Rights Issue|
|22 April||First day of trading in the Company’s shares excluding preferential rights to participate in the Rights Issue|
|23 April||Record date for allotment of subscription rights|
|24 April||Estimated date for publication of the prospectus|
|27 April – 7 May||Trading in subscription rights on Nasdaq Stockholm|
|27 April – 11 May||Subscription period|
|15 May||Announcement of result of the Rights Issue|
Stockholm Corporate Finance is financial advisor and Cederquist is legal advisor to MQ in conjunction with the Rights Issue. Hagberg & Aneborn Fondkommission is issuing agent in the Rights Issue.
For further information, please contact:
Ingvar Larsson, President and CEO: +46 31-388 80 70
Ola Wahlström, CFO: + 46 31-388 80 80
Marie Sandahl IR: 031-388 80 42
This information is information that MQ Holding AB (publ) is obliged to make public pursuant to the EU Market Abuse Regulation. The information was submitted for publication, through the agency of the contact persons set out above, on 18 March 2020 at 07.15 CET.
The information in this press release does not contain or constitute an offer to acquire, subscribe or otherwise trade in shares, subscription rights or other securities in MQ Holding AB (“MQ”). Any invitation to the persons concerned to subscribe for shares in MQ will only be made through the prospectus which MQ expects to publish around 24 April 2020.
This press release may not be released, published or distributed, directly or indirectly, in or into Australia, Canada, Hong Kong, Japan, Singapore, Switzerland, the United States or any other jurisdiction where participation would require additional prospectuses, registration or measures besides those required by Swedish law. Nor may this press release be distributed in or into such countries or any other country or jurisdiction in which distribution requires such measures or otherwise would be in conflict with applicable regulations. Any failure to comply with the restrictions described may result in a violation of applicable securities regulations.
The subscription rights, paid subscribed shares and shares in MQ have not been and will not be registered under the United States Securities Act of 1933, as amended (the “Securities Act”) or the securities legislation of any state or other jurisdiction in the United States and no subscription rights, paid subscribed shares or shares may be offered, subscribed for, exercised, pledged, sold, resold, granted, delivered or otherwise transferred, directly or indirectly, in or into the United States except pursuant to an applicable exemption from, or in a transaction not subject to, the registration requirements under the Securities Act and in compliance with the securities legislation in the relevant state or any other jurisdiction of the United States. There will be no public offering of such securities in the United States. The securities referred to herein have not been approved or disapproved by the US Securities and Exchange Commission, any state securities commission or other regulatory authority in the United States, nor have any of the foregoing authorities passed upon or endorsed the merits of the rights issue or the accuracy or adequacy of this announcement. Any representation to the contrary is a criminal offence in the United States.
This press release contains certain forward-looking information that reflects MQ’s present view of future events as well as financial and operational development. Words such as “intend”, “assess”, “expect”, “may”, “plan”, “believe”, “estimate” and other expressions entailing indications or predictions of future development or trends, not based on historical facts, constitute forward-looking information. Forward-looking information is inherently associated with both known and unknown risks and uncertainties as it depends on future events and circumstances. Forward-looking information is not a guarantee of future results or development and actual outcomes may differ materially from the statements set forth in the forward-looking information.
MQ Holding AB owns and operates fashion stores under two business areas: MarQet and Joy. MarQet is a chain of concept stores offering men’s and women’s fashions, as well as exciting new product categories adapted to the flexible way of working in the modern age Joy targets fashion-conscious women in midlife who desire excellent quality, fit and comfort. The two business areas currently comprise a total of 159 stores as well as online shopping. The MQ Holding share has been listed on the NASDAQ OMX Stockholm since 18 June 2010. For more information, see www.mq.se