The takeover would provide up to £90m of new capital for the business and would see Alchemy grow its shareholding to between 50.1 per cent and 67.7 per cent, depending how many existing shareholders take up the offer.
The deal, which requires shareholder approval, was announced alongside results for the first half of 2020 showing a loss of £40.1m, up from a loss of £36.5m in the same period last year.
However, the group said this was largely due to exceptional charges that took it from an operating profit of £7.9m, which was down from £10.8m in H1 2019.
Mortgage and surveying business down
While mortgage-related business was only slightly affected in the first three months of the year, it saw a far bigger hit from April to June, with the number of mortgages arranged falling 22 per cent and value mortgage arranged dropping 20 per cent in the latter three months.
In all the firm completed 44,020 mortgages worth £8.7bn from January to June – down 15 per cent and 11 per cent respectively from the 51,685 deals worth £9.8bn in the same period of 2019.
The results noted this was a better performance than the UK gross lending market as a whole which fell approximately 14 per cent year-on-year, with overall gross lending of £130 billion.
Surveying and valuations were even harder hit with a 27 per cent fall in the number of surveys completed to 138,793.
Three-quarters of staff furloughed
Discussing the impact of the Covid-19 lockdown and other restrictions, Countrywide noted 78 per cent of its colleagues were initially furloughed under the government’s Coronavirus Job Retention Scheme.
The chairman, non-executive directors and executive and leadership teams also agreed to take reductions in salary ranging from 20 per cent to 33 per cent.
“Current trading remains buoyant, with positive performance indicators across the group,” the firm said.
“The government’s stamp duty holiday for properties up to £500,000 provides further stimulus to our principal markets.
“However, it is still too early to assess the long-term impact of COVID-19 on the economy, and specifically housing transactions and, as a result the group is unable to provide guidance for the full year ending 31 December 2020.”
Countrywide has been under financial pressure for two years and was the subject of a takeover bid by LSL earlier this year which collapsed when LSL pulled out in March.
A new £75m term loan facility with existing lenders which is repayable four years from first utilisation has also been agreed.
Countrywide shares dropped to £1.64 on the news this morning from £1.84 at the start of trading.
Shares were worth £327 each at its peak in May 2014, but fell steadily from £299 each in May 2015 to its lowest point of 46p in April. (See graph)
Urgent need of capital
Announcing the move, the Countrywide board said: “The group is at a critical inflection point and is in urgent need of recapitalisation to reduce its net debt and lessen its exposure to its lenders.”
It highlighted the “excessive debt” burden and the need to complete the turnaround plan announced in March 2018 and deliver its ongoing strategic goals, which require significant capital investment.
It added that “the weak macro-economic outlook demands a resilient balance sheet”.
“The board believes that resolution of these issues will be best achieved through a substantial equity injection.”
Discussing the proposed takeover, executive chairman Peter Long said the announcement marked a new chapter in the evolution of Countrywide.
“When I stepped in as executive chairman, the objectives were very clear: to restore profitability and fix the balance sheet,” he said.
“The business returned to profitable growth in 2019 and with this proposed £90m fund raise, Countrywide now has a sustainable capital structure that will allow it to thrive.
“I am delighted that Alchemy have committed to this significant investment in the company and I wish them and everyone at Countrywide the greatest of continuing success.”