INNOVATE Corp. Announces Rights Offering for Common Stock

Rhea-AI Summary

INNOVATE Corp. announces a $19.0 million rights offering for its common stock, allowing all stockholders to participate. The offering includes over-subscription privileges, backstopped by Lancer Capital LLC. The company plans to use the proceeds for general corporate purposes.

Insights

Financial Analyst

The announcement by INNOVATE Corp. regarding its $19.0 million rights offering represents a strategic move to raise capital while giving existing shareholders preferential treatment. By allowing shareholders to purchase additional shares in proportion to their current holdings, the company is ensuring that its current investors have the opportunity to maintain their ownership percentages, potentially avoiding dilution of their stakes. The presence of a backstop agreement with Lancer Capital, led by the company's chairman and largest shareholder, provides a safety net for the offering, ensuring that it will be fully subscribed. This move could signal to the market that the leadership has confidence in the company's prospects.

From a financial perspective, the issuance of Series C Non-Voting Participating Convertible Preferred Stock to Lancer Capital as part of the backstop commitment is noteworthy. Preferred stock typically offers dividends and a higher claim on assets in the event of liquidation but does not carry voting rights. The convertible feature allows for conversion into common stock, subject to shareholder approval, which could be an upside for Lancer Capital if the company's stock price appreciates. The 8% interest due upon redemption, not conversion, is also a key term, as it offers a fixed return for Lancer Capital, albeit only under certain conditions.

Investors will be looking at the pricing of the rights offering and the terms of the Preferred Stock closely, as these will impact the attractiveness of the offering and the potential dilution effect on existing shares. The use of proceeds for general corporate purposes is broad and stakeholders may seek more specificity on how these funds will drive value creation.

Legal Expert

Legally, the structure of this rights offering and the concurrent private placement with Lancer Capital is complex and requires careful navigation of securities laws. The waiver of the Tax Benefit Preservation Plan to allow the acquisition of more than 4.9% of outstanding common stock is a significant legal consideration, as it prevents triggering anti-takeover defenses that could classify a rights holder as an 'Acquiring Person.' This waiver could encourage more participation in the rights offering by removing a potential barrier for larger investors.

Furthermore, the fact that the Preferred Stock to be issued to Lancer Capital will not be registered under the Securities Act and is subject to certain exemptions from registration requirements adds another layer of complexity. It restricts the sale of the Preferred Stock and necessitates compliance with specific conditions to avoid violating securities regulations. The filing of an investment agreement with the SEC will provide transparency and is a critical step to ensure regulatory compliance and investor confidence.

Market Research Analyst

In terms of market implications, the rights offering by INNOVATE Corp. could be interpreted as a strategic maneuver to strengthen its balance sheet without resorting to external debt financing. This approach can be favorable in a market that is sensitive to interest rate fluctuations and debt levels. The offering's success and the subsequent stock performance will depend on investor perception of the company's growth prospects and the perceived value of the rights offering.

It is also important to observe how the market reacts to the terms of the Preferred Stock, especially considering the liquidation preference and the potential for conversion into common stock. The conversion feature could be a double-edged sword; while it provides a path for Lancer Capital to potentially increase its stake in the company at a later date, it also introduces the possibility of future dilution for other shareholders. Market participants will likely scrutinize the balance between immediate capital infusion and long-term shareholder value.

NEW YORK, Feb. 26, 2024 (GLOBE NEWSWIRE) -- INNOVATE Corp. (“INNOVATE” or the “Company”) (NYSE: VATE), a diversified holding company, announced today that its Board of Directors (the “Board”) has approved a plan to proceed with and fixed a record date for an $19.0 million rights offering for its common stock.

All INNOVATE stockholders will have the opportunity to participate in the offering and subscribe for their basic subscription amount of newly issued shares of common stock in proportion to their respective existing ownership amounts. INNOVATE stockholders who exercise their respective full basic subscription rights will have over-subscription privileges giving such INNOVATE stockholders the option to subscribe for any shares of common stock that remain unsubscribed at the expiration of the rights offering. If the aggregate subscriptions (basic subscriptions plus over-subscriptions) exceed the amount offered in the rights offering, then the aggregate over-subscription amount will be pro-rated among the stockholders exercising their respective over-subscription privileges based on the basic subscription amounts of such stockholders.

The Company will distribute to each holder of the Company’s common stock as of March 6, 2024 (the “rights offering record date”), one transferable subscription right to purchase shares of the Company’s common stock at a price to be determined prior to commencement of the rights offering. Holders of the Company’s existing preferred stock and convertible notes that are entitled to participate in dividend distributions to holders of the Company’s common stock will also be entitled to participate in the rights offering. The offering will expire at 5:00 PM Eastern Time on March 25, 2024, unless extended by the Company. The Company expects to mail subscription rights certificates evidencing the rights and a copy of the prospectus supplement for the offering to record date stockholders beginning on March 8, 2024.

The rights offering will be backstopped by Lancer Capital LLC (“Lancer Capital”), an investment fund led by Avram A. Glazer, the Chairman of the Board and the Company’s largest stockholder. Lancer Capital will not be permitted to exercise or transfer any subscription rights received by it, or to acquire other rights, in the rights offering, which rights are required to be held by Lancer Capital until the expiration thereof. Due to limitations of common stock that can be acquired by Lancer Capital, in lieu of exercising its subscription rights, Lancer Capital will purchase up to $19.0 million of the Company’s newly issued Series C Non-Voting Participating Convertible Preferred Stock (the “Preferred Stock”), for an issue price of $1,000 per share. In connection with the backstop commitment, and as a result of limitations in the amount common equity that can be raised under the Company’s effective shelf registration statement on Form S-3, Lancer Capital will also agree to purchase an additional $16.0 million of Preferred Stock in a private placement transaction to close concurrently with the settlement of the rights offering. The Preferred Stock terms will include a liquidation preference junior to the Company’s existing preferred stock and equal to the Company’s common stock (other than a preference of $0.001 per share of Preferred Stock that will be paid to the holders of the Preferred Stock before any payment or distribution is made to the holders of the common stock).

If for any reason the settlement of the rights offering does not occur by March 29, 2024, then on that date Lancer Capital will purchase $25.0 million of Preferred Stock and, upon the settlement of the Rights Offering, to the extent that Lancer Capital would have, based on the number of shares of common stock actually sold upon exercise of the rights, purchased less than $25.0 million of Convertible Preferred Stock under the backstop commitment and the concurrent private placement, the Company will redeem such excess Preferred Stock from Lancer Capital at the redemption price of $1,000 per share.

The Preferred Stock can be convertible into common stock at the price equivalent to the subscription price under the rights offering contingent on shareholder approval, which will be voted on at the next annual meeting. If the Preferred Stock is not converted to common stock, it may be redeemed at the Company’s option or on the sixth anniversary of issuance plus accrued interest of 8% which is only due upon redemption and not conversion.

Lancer Capital’s backstop commitment and the concurrent private placement will be effected in the manner set forth in an investment agreement to be entered into with the Company in connection with the commencement of the rights offering, a copy of which will be filed by the Company with the SEC.

The Company has waived its Tax Benefit Preservation Plan to permit persons exercising rights to acquire 4.9% or more of the outstanding common stock upon the exercise thereof without becoming an Acquiring Person (as defined in the Tax Benefit Preservation Plan).

INNOVATE expects to use the proceeds from the rights offering for general corporate purposes.

The rights offering will be made pursuant to INNOVATE’s effective shelf registration statement on Form S-3, filed with the SEC on September 29, 2023 and declared effective on October 6, 2023, and a prospectus supplement containing the detailed terms of the rights offering to be filed with the SEC.  The information in this press release is not complete and is subject to change. This press release shall not constitute an offer to sell or a solicitation of an offer to buy any securities (including without limitation the Preferred Stock to be issued and sold in the concurrent private placement), nor shall there be any offer, solicitation or sale of the securities in any state or jurisdiction in which such offer, solicitation or sale would be unlawful under the securities laws of such state or jurisdiction. The rights offering will be made only by means of a prospectus and a related prospectus supplement. Copies of the prospectus and related prospectus supplement, when they become available, will be distributed to all eligible stockholders as of the rights offering record date and may also be obtained free of charge at the website maintained by the SEC at www.sec.gov or by contacting the information agent for the rights offering.

The Preferred Stock to be issued to Lancer Capital pursuant to the backstop commitment and the concurrent private placement will not be registered under the Act and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements.

About INNOVATE

INNOVATE Corp. is a portfolio of best-in-class assets in three key areas of the new economy – Infrastructure, Life Sciences and Spectrum. Dedicated to stakeholder capitalism, INNOVATE employs approximately 4,000 people across its subsidiaries. For more information, please visit: www.INNOVATECorp.com.

Cautionary Statement Regarding Forward-Looking Statements

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995: This press release contains, and certain oral statements made by our representatives from time to time may contain, forward-looking statements regarding the proposed rights offering and concurrent private placement, including, among others, statements related to the expected timing, eligible offerees, backstop purchasers and expectations regarding participation in the rights offering, the use of proceeds from the rights offering, the size of the rights offering and other terms of the rights offering, all of which involve risks, assumptions and uncertainties, many of which are outside of the Company's control, and are subject to change. The commencement and consummation of the rights offering are also subject to customary conditions, including declaration by the Board of the dividend constituting the rights to be issued in the rights offering and market conditions. Accordingly, no assurance can be given that the rights offering or concurrent private placement will be consummated on the terms described above or at all. All forward-looking statements speak only as of the date made, and unless legally required, INNOVATE undertakes no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

Contact:

Solebury Strategic Communications
Anthony Rozmus
ir@innovatecorp.com
(212) 235-2691 

FAQ

What is the latest announcement from INNOVATE Corp. (VATE)?

INNOVATE Corp. has announced a $19.0 million rights offering for its common stock, with over-subscription privileges, backstopped by Lancer Capital LLC.

When will the rights offering expire for INNOVATE Corp. (VATE)?

The rights offering for INNOVATE Corp. will expire at 5:00 PM Eastern Time on March 25, 2024, unless extended by the company.

Who is backstopping the rights offering for INNOVATE Corp. (VATE)?

The rights offering for INNOVATE Corp. is backstopped by Lancer Capital LLC, an investment fund led by Avram A. Glazer, the Chairman of the Board and the Company’s largest stockholder.

How will the proceeds from the rights offering be utilized by INNOVATE Corp. (VATE)?

INNOVATE Corp. plans to use the proceeds from the rights offering for general corporate purposes.

What type of stock will Lancer Capital purchase in connection with the backstop commitment for INNOVATE Corp. (VATE)?

Lancer Capital will purchase the Company’s newly issued Series C Non-Voting Participating Convertible Preferred Stock (Preferred Stock) in connection with the backstop commitment.