Investors in Scout Gaming Group (SGG) are jumping ship after the company’s board called an extraordinary general meeting in order to attract new capital and avoid bankruptcy.
The Stockholm-listed B2B fantasy sports and betting supplier has had a tough year; its share price has fallen by more than 93% in the last 12 months.
On Monday (1 August), shares plummeted 17.4% and finished trading at SEK2.12 (€0.20), after the company announced an extraordinary general meeting scheduled on 1 September, intended to give investors the opportunity to vote on a rights issue worth SEK101m (€9.72m).
The fresh capital is needed to fund a comprehensive restructuring programme and keep SGG going, as the business does not have sufficient cash reserves to survive the next year.
In order to obtain additional cash to fund the struggling business, SGG envisages a rights issue of 202,680,423 shares, with preferential rights for the company’s existing shareholders, at a subscription price of SEK0.50 (€0.048).
Existing shareholders will receive one subscription right for each share already held. Each subscription right entitles the holder to subscribe for nine new shares in the company.
The rights issue could see the business increase its share capital by a maximum of SEK10.7m, and its number of shares by up to 202.7m, corresponding to a dilution of approximately 90% of the total number of shares and votes in the company.
The issue is fully guaranteed through subscription undertakings of SEK46m (€4.4m) and underwriting undertakings of approximately SEK55m (€5.3m), which have been entered into by the existing shareholders Topline Capital Partners LP, Scobie Ward, Novobis AB, Knutsson Holdings AB and Erlinghundra AB.
In June 2022, the financially distressed company set out on an extensive reorganisation and transformation exercise, which included reducing the number of employees and employed consultants.
SGG also created a new management team focused on finance, sales and product.
Scout Gaming Group: “The change is intended to create a better functioning organisation that is more cost-effective and fast-paced to serve the company’s existing customers and partners to a higher degree.”
In June, CEO Andreas Ternström stepped down after six years at the helm of the organisation, as chief financial officer Niklas Jönsson became acting CEO.
SGG said of its restructuring programme: “The change is intended to create a better functioning organisation that is more cost-effective and fast-paced to serve the company’s existing customers and partners to a higher degree.”
SGG expects to save approximately SEK32m (€3.1m) per year as a result of the restructuring.
The company’s longer term ambition is to increase the number of new B2B contracts while increasing its engagement with existing customers – particularly in the European market – in order to increase its revenue and achieve profitability over the next 12 months.
“The restructuring will help the company to achieve these objectives,” SGG said.
However, SGG’s board of directors said that the company’s “existing working capital is not sufficient to meet the company’s needs for the next 12-month period.
“For this reason, the company convenes the extraordinary general meeting in order to carry out the rights issue and to strengthen the financial position of the company in order to implement the company’s business plan and strategy,” the board added.
SGG expects to spend 15% of the fresh capital on increased sales and marketing activities. A further 35% is earmarked to cover operating expenses, variable and fixed costs, while 10% will be used to further develop SGG’s product offering. Around 40% is allocated to offset or repay previous bridge financing.