Spyker Cars has provided further strategic and financial details regarding its acquisition of Saab Automobile AB from GM. (Earlier post.) Under Saab’s Business Plan, drawn up by Saab management over the past ten months, and fully supported by Spyker, Saab will be a stand-alone niche manufacturer with three to four model lines: 9-3 (sedan, hatchback, sports estate, X and convertible) and 9-5 (sedan, sports estate and X) and the 9-4X for both the US and European markets.
Saab will investigate the potential of adding a fourth smaller car line (9-1) “in due course” provided that the positive development of the smaller car segment continues. However, because the such a model is currently not envisaged in the Business Plan, additional financing to develop this model could be required. Saab’s product portfolio will be renewed completely, beginning with the launch of the new 9-5 early this summer, the new 9-4X in early 2011 and the new “all Saab” 9-3 in 2012.
With Trollhättan as one of the most efficient mid-size car plants in Europe, production and sales volumes are aimed to be rebuilt to recent pre-crisis levels of about 100,000 to 125,000 vehicles including the 9-4X built in Mexico. The current dealer network will be re-energized with a new sales and distribution approach in certain markets, which will be implemented during 2010.
The economies of scale of the on-going collaboration with GM after closing the acquisition (February 2010) will continue to be leveraged in sourcing via ancillary agreements, with independent sourcing gradually increasing to reduce GM dependency and obtain improved access to other suppliers and the co-development of unique innovations.
The Saab Business Plan requires approximately US$1 billion in peak funding for Saab in advance of the return to profitability, forecast to occur by 2012. The funding is provided in part by GM and in part through other contributions:
- $326M redeemable preference shares (RPS) to be issued by Saab to GM
- $556M EIB loan (securing this loan is a condition of the acquisition of Saab)
- $200M estimated cash at bank at time of closing
With this financing in place, the business plan does not envisage any future funding being required, neither from Spyker or elsewhere, for Saab to return to profitability. The business plan targets car production and sales at or below historical levels of 100,000 to 125,000.
Redeemable Preference shares. At Closing, GM will convert US$326 million of pre-closing receivables on Saab into RPSs in Saab. The issue of the RPSs will therefore not cause any dilution for the shareholders in Spyker. The voting rights attaching to these RPSs constitute 0.0005% of the total voting rights in Saab. The other 99.99% of the voting rights (100% of the ordinary shares) will be held by Spyker. Since the RPSs are capital and not a loan, no interest is due at any time by Saab.
The RPSs carry no dividend from Closing until December 31, 2011. A dividend entitlement of 6% starts from 1 January 2012 through 30 June 2014 and increases over time to 12% as from 1 July 2014 until the scheduled redemption date of 31 December 2016. The dividend over 2012 will be added to principal, but as from fiscal year 2013 the dividend is payable in cash. Should Saab have insufficient distributable reserves to pay the cash dividend it will be added to principal increased with a penalty factor of up to 4%, but such that the total dividend entitlement will never exceed 12%.
In the period 2010-2016, the average dividend payable is about 4%, which is considerably below the average interest on a comparable subordinated loan.
The RPSs qualify as equity and therefore, if Saab cannot pay dividends or redeem the RPSs, Saab will not be in default but the RPSs will simply continue to accrue. Also, the RPSs cannot be redeemed as long as the EIB loan is not yet fully repaid. The Saab Business Plan envisages redemption of the RPSs starting in 2016 out of retained profit, without additional funding (from Spyker or anyone else) being required.
Funding of Spyker. Spyker’s existing bank loans in the aggregate amount of €57 million are refinanced by Tenaci Capital B.V. (Tenaci). The terms and conditions of this loan will mirror those of the existing loans it repays, including the right to convert €9.5 million into ordinary shares at €4.00 per share. The term of the loan is 12 months and the interest 10% above Euribor. After payment of the last instalment of the Purchase Price, Tenaci has the right to collateralize the loan on terms and conditions identical to those on which the existing loans were collateralized.
The Purchase Price of Saab amounts to US$74 million (€53.23 million at the current exchange rate of 1:1.39). The first instalment of US$50 million, to be paid on Closing, will be paid as follows: US$25 million is borrowed from Tenaci at the same interest rate as the other funding extended by Tenaci, without the right to convert into shares. This amount is currently already in escrow with General Motors.
The other US$25 million is financed through a share issue, largely through a commitment from GEM Global Yield Fund Ltd under an equity facility concluded between Spyker and GEM. Spyker currently does not intend to draw in excess of US$25 million under this facility.
The second instalment, US$24 million, will be payable on 15 July 2010. Spyker has been approached by various investors to fund this instalment. Spyker intends to finance this amount primarily through senior debt (senior to the debt owed to Tenaci), but does not rule out other alternatives. Spyker has committed to pledge its assets to GM as security for this final tranche.
Structure. At the upcoming General Meeting, Spyker Cars N.V. intends to adopt a resolution to change its name to Saab Spyker Automobiles NV (Saab Spyker). This entity will operate Spyker and Saab as two separate operating companies, each focused on its distinct target markets with their respective vehicle lines.