The struggling used car giant Cazoo is desperately seeking financial support as it plunges deeper into a fiscal emergency.
The web-based car seller is urging its shareholders to approve a critical financial boost, while also exploring backup plans. An insider involved in the talks mentioned that various strategies are being considered, such as attracting new investors, selling or dismantling the company, and liquidating assets.
However, if new capital is not secured, the company may have to contemplate entering administration. Specialists in restructuring and insolvency are being recruited to help manage the crisis.
In December, Cazoo announced that it might deplete its funds by mid-year. This predicament follows years of substantial losses and a significant downturn in the used car market.
This situation is another hurdle for a firm that founder Alex Chesterman boasted would revolutionize an industry he criticized for being outdated.
Launched in 2018, Cazoo went public on the New York Stock Exchange in 2021, but instead of the success Chesterman anticipated, it has faced continuous turmoil.
Last December, even after extensive cost reductions, Cazoo entered a contentious debt-for-equity swap to ensure its survival, resulting in considerable losses for its current shareholders.
This agreement transferred control to a consortium of bondholders led by Viking Investors, an American hedge fund. They forgave $630 million in debt and agreed to provide $200 million in new loans.
Shareholders were left with only an 8% stake in a company whose value had plummeted by 99%. Concurrently, Chesterman and four other directors resigned from the board.
Merely a few days after, Cazoo shocked the financial markets with a startling revelation that it was grappling with a severe liquidity crisis.
The firm alerted that it risked depleting its financial resources in the first half of 2024 without securing extra funding. It projected to conclude the year with a cash reserve ranging between £100 million and £115 million, along with an inventory of cars valued between £20 million and £30 million.
However, the company warned that it was rapidly depleting its funds, spending between £30 million and £40 million every quarter. Due to conditions in its lending agreements, it was required to maintain a minimum cash reserve of £50 million from the start of the year.
The company expressed in a statement to U.S. regulators, “If we fail to secure sufficient financing… our capacity to operate as a viable entity… could be greatly restricted, leading to significant negative impacts on our business, financial status, operational results, and prospects.”
At its Wall Street debut, Cazoo was valued at $8 billion, propelling Chesterman into the upper echelons of wealth and securing substantial earnings for other principal investors, including the publisher of The Daily Mail.
Chesterman stirred controversy in a press interview by criticizing traditional car sales methods as “fundamentally flawed.”
To elevate its brand, Cazoo invested heavily in sports sponsorships and advertising, aspiring to dominate the European market. The company’s logo appeared on the kits of at least nine football teams, including Premier League clubs Everton and Aston Villa, Spanish teams Valencia and Real Sociedad, France’s Olympique de Marseille, and Germany’s SC Freiburg.
Additionally, Cazoo was a key sponsor for the St Leger Stakes horse race, the Hundred Cricket tournament, the Rugby League World Cup, the World Snooker Tour, and the PDC World Darts Championship.
Cazoo’s marketing expenses exceeded £45 million in the first half of 2022. However, as the company’s financial situation worsened in the latter half of the year, it began to significantly cut costs.
Cazoo has retreated from its European ventures, where it had expanded into numerous countries, shut down two-thirds of its UK car handover centres, reduced its transporter fleet by 20%, and eliminated hundreds of positions.
Despite these efforts, the measures have not stabilized its stock value or led the company towards profitability. By the end of June last year, the total losses amounted to £1.4 billion.
Furthermore, its market capitalization plummeted to a mere $38 million during a one-for-100 reverse stock split, which was part of its debt restructuring deal with creditors.
A spokesperson for Cazoo stated, “Cazoo does not respond to market speculation, but as we have outlined in our filings with the SEC, we are actively exploring potential partnerships, synergies, mergers, acquisitions, joint ventures, and sales, considering our revised capital structure.”
