GN at a Crossroads: Shareholders Reject Proposal to Raise Capital by Issuing New Shares

Analysis: Highly successful company must find plan to finance debt from SteelSeries purchase that meets with shareholders' approval

Reports from the GN Store Nord and its Annual General Meeting (AGM) held this morning in Denmark indicate the company will need to seek other alternatives for raising capital than its previous proposal to raise about US$1 billion (DKK7 billion) by issuing new shares. Although the board's original plan to issue shares (with pre-emptive rights for existing shareholders) was withdrawn, GN could still possibly lower the proposed number of shares issued and gain approval. It's also possible for the company to call an extraordinary general meeting (EGM) to seek other solutions, including splitting the company's Audio and Hearing divisions for a sale, or entering into a merger with Demant or some other dark horse company.

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GN is the parent company of the ReSound, Beltone, Jabra, and SteelSeries brands.

In a press release issued yesterday, GN stated:

“The feedback from and dialogue with several shareholders prior to the Annual General Meeting as well as votes received in advance has made it clear that the proposal [to issue new shares] would not achieve support by the required two-thirds of the votes, even though approximately half of the votes were in favor.

The Board recognizes that, despite the support of many shareholders, there are different opinions on this proposal—many investors support the proposal and some do not. The Board naturally listens to the shareholders' opinion and have therefore decided to withdraw the proposal before the Annual General Meeting.

The Board continues to believe that additional capital is essential to reduce existing debt and allow GN to focus on the implementation of its innovation strategy while maintaining sufficient financial resilience in challenging market conditions.”

GN remains the world’s fourth-largest hearing aid manufacturer and is a highly successful and profitable company. Its products include GN Hearing’s ReSound, Beltone, and Jabra Enhance hearing aid lines, and GN Audio’s Jabra and SteelSeries headsets. GN’s 2022 annual report says it delivered revenue of DKK 18.7 billion (US$2.65 billion) and an adjusted EBITA of DKK 2.2 billion (US$310 million) in an extremely challenging year. However, GN’s purchase of SteelSeries in January 2022 for $1.2 billion, combined with the economic headwinds during 2022 and other factors like the war in Ukraine, has left the company with a worrisome debt load that comes due in 2024.

Analysts speculate that, if GN cannot raise capital through issuing new shares, it may be forced to split up and surrender either its Hearing or Audio division. However, the Danish business journal Medwatch reported that during today’s annual meeting outgoing GN Group Chairman Per Wold-Olson was not in favor of this. He said “In recent times, we have been met by questions from the press about why we aren’t splitting the company in two. We don’t think this would be wise, nor that it would create long-term value for shareholders.”

Analysts have also speculated another option would be for GN to merge with the world’s second-largest hearing aid manufacturer, Demant (maker of Oticon and Bernafon hearing aids), which has its Danish headquarters not far from GN. William Demant Invest currently owns over 10% of GN shares and many synergies exist between the two companies. The idea of a merger was popular with some shareholders at the AGM. However, among other possible concerns and obstacles, the merger process and regulatory approval could be complicated enough to make timeliness a concern.

Medwatch reports that, in a comment to the press following the annual meeting, GN’s new Chairman Jukka Pekka Pertola said “I don’t want to speculate too much. We will continue dialogs with shareholders to find the right solution. But there are simply too many different alternatives to look into.”