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Weak demand for AMS fundraising highlights Osram deal doubts

FILE PHOTO: The Logo of Austrian sensor specialist AMS is seen on their factory in Unterpremstaetten

VIENNA (Reuters) - Weak demand for sensor maker AMS's <AMS.S> share issue this week has highlighted investors' doubts about the company's ability to cope with its takeover of German lighting group Osram <OSRn.DE>.

Low take-up of the Austrian group's capital increase by investors forced underwriting banks UBS <UBSG.S> and HSBC <HSBA.L> to take a combined 15% AMS stake.

Swiss-listed AMS shares fell more than 12% to a nearly eight-year-low of 8.35 Swiss francs on Wednesday. Osram's traded as low as 28.85 euros, more than 12 euros below the 41 euros AMS has agreed to pay to buy the company.

"Some investors are sceptical about the AMS-Osram deal, which was struck before the Covid-19 crisis, as conditions are totally different today," said one banking source.

Investors were already doubtful about the Osram takeover because AMS, which is heavily dependent on Apple <AAPL.O> as a customer, took on more than 4 billion euros in debt to buy the German group, which has three times as many staff.

Now with the coronavirus pandemic spreading and halting manufacturing across the world, concerns regarding future revenue streams have increased.

AMS issued 190 million new shares via a rights issue, raising 1.75 billion francs ($1.8 billion) as planned to help fund its purchase of Osram, with which it wants to develop solutions for self-driving cars and smartphone applications.

But because of low take-up, UBS and HSBC were left with an AMS stake of 7.7% and 7.2% respectively.

Only 62% of AMS shareholders and subscription rights holders bought the new shares. One banking source said this was one of the lowest take-ups he had seen in his professional life.

An additional 8% of AMS shares were sold in the market.

Liberum analysts said: "Our concerns on the acquisition have ... increased as a result of the sharp on-going weakness in auto demand on the back of Covid-19 and the impact that this is expected to have on Osram's profitability and cash flow."

Osram withdrew its 2020 guidance last month, saying the pandemic would affect demand in its semiconductor and automotive divisions, which account for more than half its sales.

AMS, known for supplying iPhones with sensors for their face recognition features, confirmed its first-quarter revenue forecast of $480-520 million two weeks ago. Customers, such as Apple, have had production disruptions due to the coronavirus crisis.

UBS and HSBC, along with Bank of America Merrill Lynch <BAC.N>, have provided a 4.4 billion euro bridge loan for the Osram purchase.

The rights issue, earmarked to refinance the loan, now increases UBS's and HSBC's commitment by nearly 200 million Swiss francs respectively.

Since AMS said in December that its Osram bid had been successful, its shares have lost 70% and Osram's around 30%.

The European auto sector index <.SXAE> is 40% lower and the tech index <.SX8P> 20% lower. Apple shares have lost 5% in that period.

(Reporting by Kirsti Knolle, additional reporting by Alexander Huebner and Arno Schuetze; Editing by Mark Potter and Jane Merriman)