Quebecor World took another turn for the worse Monday, as the cash-strapped printing company stops paying dividends on its preferred shares and continues to search for a refinancing plan.
Quebecor World knocked the stuffing out of normally stable preferred shares by halting payouts of $27-million a year in dividends on its $475-million of these securities.
Holders of $300-million worth of Quebecor World preferred shares that were issued at $25 now own stock changing hands a $5. A second series of $175-million in preferred shares, also issued at $25 and convertible into the printing company’s common shares, are fetching $16.70. Investors who bought Quebecor World preferred shares on the prospect of clipping dividends are now receiving no income and face substantial losses on their positions.
Quebecor World common shareholders have already seen their equity hammered, with stock at $2.39 on the TSX Monday after changing hands at $40 just five years ago. The shares have swooned in the last four weeks as a $750-refinancing plan was put forward, then cancelled.
The bigger game at Quebecor World is how the debt-heavy company refinances with its common stock at 52-week lows, and the convertible debentures expected to flip into common stock early in the new year. Analysts such as Eric Mencke at UBS Securities predict the printing company will eventually have to pick between one of four separate paths. Each route leaves shareholders at a totally different destination, with some outcomes favourable, and one really nasty ending.
Here’s what may come next for Quebecor World:
1/ The company could simply do nothing, and see its common stock diluted by 66 per cent when the series 5 preferred shares are redeemed for common stock early in 2008. In this scenario, both the preferred and common shares will, at best, continue to trade around current levels, or more likely test new lows.
2/ The company could successfully sell assets such as its Latin American printing unit in order to fund refinancing. If enough money is raised, Quebecor World could redeem the convertible preferred shares for cash, and resume dividend payments on the second class of preferred shares. This would boost the price of each class of stock.
3/ Quebecor World could be purchased, in either a sale to a rival such as R.R. Donnelly, or in a going-private transaction involving the founding Péladeau family. In this scenario, the common stock likely sells for about $6 a share, while the preferred shares get redeemed at par.
4/ Quebecor World could file for creditor protection, in which case the price of both common and preferred shares goes to zero. This is the fate that befell Dylex, which went into a death spiral as convertible preferred share issues made it impossible for the retail chain to refinance.