For Aston Martin, 2020 Is No Time to Die

(Bloomberg Opinion) -- For the many hedge funds betting against Aston Martin, a takeover bid for its parent company is a dreaded specter. Thursday brought the trailer for such a scenario, with Britain's Autocar magazine reporting that motor-racing mogul Lawrence Stroll could acquire a controlling stake in Aston Martin Lagonda Global Holdings Plc.

With no formal announcement, despite a 20% share-price jump, some caution is warranted. But if you think the historic sports-car maker will escape its current troubles, now would be the time for a predator to buy.

Aston has become a binary bet on its new DBX luxury sports utility vehicle. The company has taken on vast and expensive debts in developing the car. But worries over whether it could deliver on time are abating: Marketing began last month and full production is scheduled for the second quarter of next year. Darker macro clouds maybe lifting too. Sterling's recent rally suggests hope for greater U.K. political stability and perhaps a clearer sense of where Brexit is heading. Rising stocks hint that trade-war fears may be easing. It helps too that there'll be a new James Bond movie, stuffed with Aston Martins, just when the DBX comes out.

Now consider the dynamics of Aston's shareholder register. There are three big strategic shareholder blocks: Kuwaiti investment funds, the Italian private-equity group Investindustrial Advisors SpA and German automaker Daimler AG. The Kuwaitis have been selling down since last year's initial public offering. Any aspiring buyer would knock on their door first, but their shares alone wouldn't confer control. If Stroll wanted real influence, he'd have to make an offer to all shareholders, probably having lined up Kuwaiti support in advance.

It's not clear who else might want to sell given that a bid at, say, 650 pence a share — roughly 30% above Wednesday's close — would still be 66% below the IPO price. Investindustrial might want to hang on. Either way, any offer now would rest on tricky scenario planning. Whether the DBX succeeds or flops, Aston will probably want to cut its excessive debt by selling new shares to raise equity. Assuming some existing investors — notably the Kuwaitis — weren't willing to inject more money, that capital increase would provide a natural opportunity for Stroll to step into their shoes.

Of course, if DBX sales really take off, Aston's share price would fly too. Perhaps better to move now with prices depressed than to wait and see. 

If Stroll gets a big stake, that will also raise questions about Aston's strategy, which is based on launching seven new vehicles, with each one generating revenue to fund the next. Right now, the focus is on getting the DBX to market and managing cash as tightly as possible. Shareholders who exit via an offer won't need to worry. But those who wish to stay invested will want to know whether a new partner with a background in motor racing has other ideas.

To contact the editor responsible for this story: Timothy Lavin at tlavin1@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Chris Hughes is a Bloomberg Opinion columnist covering deals. He previously worked for Reuters Breakingviews, as well as the Financial Times and the Independent newspaper.

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