The embattled Swiss-Irish baked goods firm Aryzta has announced an €800m rights issue that management hopes will create a more stable foundation for its recovery.
xisting shareholders who don't participate in the planned equity fundraising will see their stakes in the troubled business slashed.
Investors who held on to shares in the Cuisine de France owner for the past couple of years have already endured value erosion.
The shares have slumped 80pc since December 2016, shortly before it issued one of a string of profit warnings.
Its market capitalisation has plummeted from about €3.5bn to €668m in that time.
The shares had fallen almost 50pc in the 18 months before that. Speaking to analysts yesterday, Aryzta CEO Kevin Toland said the equity fundraising "wasn't our preferred choice".
He said the planned €800m equity raise "is the number we determined was the right mix to let us develop the business, to have a normalised debt structure and lower levels of leverage".
Aryzta, which manufactures burger buns for McDonald's, had net debt of €1.62bn at the end of January, and the equity proceeds will be used primarily to reduce it.
Aryzta chairman Gary McGann insisted last December that a cash call would be a last resort.
"It would be the last option we'd look at having exhausted all other options," said Mr McGann, who pointed to a potential realisation of Aryzta's 49pc stake in French frozen food firm Picard - a process that's continuing.
Mr McGann added at the time: "Principally, the concept of taking the easy path of asking the shareholders to throw in a few bob to help us out before the management have completed the things they should be doing to help the company out, I think is probably the wrong way round."
Mr Toland said yesterday that the decision to call on shareholders to prop up the beleaguered firm would give Aryzta breathing space.
He said it was a "tough but necessary" call.
"It wasn't our preferred choice," Mr Toland said. "I said we needed to do all the things that management should do in terms of conserving cash, trying to increase ebitda (earnings before interest, tax, depreciation and amortisation) and manage the business which we have been doing and are continuing to do."
He added: "I guess the real issue is we need more time and we need more space and we need more flexibility to implement for us, I believe, a very good winning strategy for the business."
Aryzta said trading in the fourth quarter of its financial year, which ended in last month, was in line with expectations and that its full-year ebitda is expected to be between €296m and €304m.
"I'm absolutely confident that this business has turned the corner," said Mr Toland.
"Having looked at the operational issues, looking at the strategic issues, I think it's tough but necessary for us now to fix our balance sheet just to make sure we have the strategic and financial flexibility to make that happen and do a very good job for our shareholders," he added.
But doubts linger about the company's prospects.
"While the balance sheet will be strengthened, question marks about structural strategic issues and operations remain unanswered," said Jean-Philippe Bertschy, an analyst at Bank Vontobel.