The Melbourne-headquartered company told shareholders today that it had entered into a conditional agreement with Mason Holdings to purchase an additional 46% stake in Blend and Pack (B&P), taking its holdings in the firm to 51%.
As part of the proposed acquisition, Wattle Health Australia will also enter a put and call option with Mason to purchase the balance on Mason’s 29% shareholding in B&P for $30.1 million.
Upon completion of the initial 46% purchase, Wattle Health Australia’s total assets will be valued at circa $165 million.
Wattle Health Australia executive chairman Lazarus Karasavvidis said the proposed acquisition would enable the company to add value across the entire production supply chain.
“With this acquisition, Wattle Health Australia becomes a fully vertically integrated Australian organic dairy company with influence, control and bricks and mortar investments through the entire value chain – from the farm gate to the consumer,” he said.
“The acquisition of further shares in Blend and Pack will also bring Wattle Health Australia a step closer to realising its sales and distribution ambitions into key offshore markets such as China.”
Wattle Health Australia considers the Chinese market to be a lucrative revenue generator, with the company receiving approval to sell its Australian grass-fed powdered milk into the country’s booming powdered milk market in 2018.
Blend and Pack
The move to increase its shareholding in B&P reflects Wattle Health Australia’s strategic objective of being the only Australian vertically integrated organic nutritional dairy company.
As one of the first Australian manufactures to obtain certification and accreditation from China, B&P manufactures dried dairy products for major domestic and international nutritional dairy companies.
The company, which is considered the largest independent, nutritional dairy processing and packaging business in Australia, posted circa $26 million in revenue for the 2017 financial year.
Looking forward, Wattle Health Australia noted that projected revenue for B&P for FY20 was forecast to total $31.2 million, increasing to $59 million for FY21.
Debt placement set to fund acquisition
Wattle Health Australia hopes to fund the acquisition via a debt issue which will be managed by international capital advisory firm, Exotix Capital.
While the proposed terms of the raise have yet to be finalised, the company indicated it would take place via a private debt placement.
The debt deal is being undertaken to prevent further shareholder dilution in respect of the B&P deal.
“As a leading organic dairy company, we believe Wattle Health will have significant appeal to North American private placement debt investors who will value Wattle Health’s exposure to high growth Asian markets and commitment to clean, organic products,” Exotix chief executive officer Duncan Wales said on the debt arrangement.
On successful completion of the debt issue raise, Wattle Health Australia plans to terminate the Prospere Advisors loan announced last June.
The successful acquisition of B&P remains subject to several conditions, including shareholder approval. Investors will get to vote on the purchase at a planned extraordinary general meeting next month.
Wattle Health Australia shares rose 3.5% at noon to $1.03.
As seen in Small Caps, February 11th 2019.