Bubs to acquire 100% of Deloraine Dairy, Funding secured from C2 partners

The infant milk producer, Bubs Australia Limited (ASX: BUB) announces conditional sales and purchase agreement to acquire 100% of infant formula producer Australia Deloraine Dairy (Deloraine).

Deloraine will be acquired via A$25 million in cash and ~15.38 million Bubs shares to the tune of A$10 million, at a strike price of A$0.65 a share, to be escrowed for twelve months. On top of this, if certain targets are accomplished, Deloraine vendors would get additional payments of up to A$15 million. The payment would be made annually in equal instalments over next 36 months.

In the same announcement, the company also informed the exchange about its fundraising from C2 Capital Partners. Bubs has entered a private share placement, at A$0.65 a share to C2 Capital Partners (C2), to raise ~A31.44 million. The placement will involve issue of ~43.37 million ordinary shares (fully paid) in Bubs Australia.

The acquisition and placement are expected to be completed by mid-April 2019.

Further, C2 would acquire more shares in Bubs via off-market share acquisition from the NuLac Foods Vendors (current shareholders). Post this deal, C2 would hold 15% in Bubs. With this transaction, Steve Lin, the C2 managing partner would join as Non-Executive Director on the Bubs board.

There are only 15 licenced canning facilities in Australia that are authorised by the Certification and Accreditation Administration of China (CNCA) for physical importation into China. Deloraine is one among the fifteen licence holders.  Mid last year, Bubs had entered a manufacturing agreement with Deloraine to manufacture Caprilac® goat milk powder products and Bubs® goat milk infant formula. The plant has the capacity to process ten million tins currently and could double capacity with additional capital expenditure.

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Bubs founder and CEO, Kristy Carr believes that this acquisition is a key base in Bubs vertical-integration strategy, as per the ASX announcement. Also, he stated that the acquisition represents an important step in the company’s expansion into Chinese business. Carr also expects the deal to have a significant impact on the business through a concrete reduction in their production costs and aid bubs to achieve SAMR brand recognition and thus enable the company to sell products in physical mother and baby stores in China. Deloraine’s Principle Manager and GM will continue the day-to-day management of the business as a full-time employee of Bubs.

John Gommans will retire from the Board post completion of the off-market share transfer by the NuLac Foods Vendors to C2.

However, NuLac foods vendors remain in the top ten of the share registers. John Gommans would remain a key advisor to the company. There would be no change in the current supply agreement with the companies owned by the NuLac Foods Vendors.

Stock Price Information:

The shares of BUB are trading at A$0.785 on ASX, down by around 2.5 percent (as at 3:40 PM AEST, 1 April, 2019), and the shares came out of trading halt (announced on 29 March before the market opened) post today’s announcement.

The stock has witnessed a good 2019; it has delivered a YTD return of 76.92 percent. The stock has been in a good long-term uptrend, it has delivered a return of 705.00 percent in the five years and delivered 43.7 percent in the past month.

BUB’s market capitalization stands at A$358.1 million. The ASX reported average trading volume is 3,174,895. The company’s EPS stood at -0.208 AUD.


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