Shares in Johnston Press collapsed 17% today, continuing a rout that started yesterday. This takes them to around 50p — below the rights issue price of 53p.
The decline is way beyond the 6% decline experienced by Trinity Mirror today.
So is this the cue for a Bradford & Bingley-style crisis?
The short answer is no. Johnston’s shareholders have already signed off the rights issue. This means that Deutsche Bank is tied into underwriting the issue at 53p. If shareholders don’t buy additional shares at that price, then the bankers are obliged to do so.
This means that Tim Bowdler and Johnston Press will get their £212m.
In turn, this makes the recent rout of Johnston’s shares even more puzzling. In theory, the company now has the ability to strengthen its balance sheet. So why the panic?
Speculation is part of the answer. Up to 18% of Johnston’s shares are held by hedge funds and other short sellers — one of the largest proportions in the FTSE-250.
This week’s swoon is part of a classic pattern in which hedge funds short the stock and buy nil-paid rights at depressed values. Once this gamesmanship works its way through the system, Johnston Press shares should stage a partial comeback.
At Deutsche Bank, they’ve also noticed that the share price declines of the past 48 hours tend to accelerate in the afternoon. For what it’s worth, this suggests that US investors are piling out of Johnston Press.
It would make sense for US investors to be more worried than most about the intensely gloomy economic indicators emerging from the UK. Sitting in New York, it must be hard to avoid the thought that Britain is heading for a destination the US has already reached.
In the US, ad revenues at newspapers in hard-hit states like Florida and California are dropping by 30% YOY. Here, according to Johnston Press, the decline was more like 10% YOY by the end of Q1. These declines can only accelerate during Q2.
Today, there was an added factor in the mix: Gannett’s announcement that it has been forced to write down the value of its newspapers by $2.5bn-$3bn. In a move that may have been designed for US consumption, Gannett blamed the bulk of the carnage on Newsquest.
Fairly clearly, this won’t have helped Johnston Press.
Never mind. It could be worse. Today, the FT reported that shares in Barratt Developments, the housebuilder once patronized by Margaret Thatcher, have collapsed by more than 90% from their peak in February 2007.
By contrast, Johnston Press shares finished the day 85% off their 52-week high of 329p.
We’re getting near the bottom. But there’s a way to go yet.