On 6 December 2018, Asaleo Care Ltd (ASX: AHY) announced the sale of its Australian Consumer Tissue business to Solaris Paper Pty Ltd. Following the release of this news, the share price of the company increased by 47.2% as on 6 December 2018 (around mid-day trading).
Solaris Paper is a distributor of high-quality toilet and tissue paper products in the Australasia region and in this transaction it will pay $180 million to Asaleo Care Ltd to buy the Asaleo’s Australian Consumer Tissue business which includes leading brands Sorbent toilet and facial tissue, Handee Ultra paper towel, and Deeko serviettes and disposable tableware.
Asaleo Care will retain its Consumer Tissue business in New Zealand and it will also retain its Consumer Tissue business in Fiji and Pacific Islands. As per the announcement, the sale will be completed during Q1 2019 and it is not expected to meet any competition issues.
According to Asaleo Care’s Chairman, Mr. Harry Boon, this divestment of Australian Consumer Tissue business is a result of the Company’s comprehensive strategic review which was initiated in the first half of 2018. This transaction will provide benefits to the parties and it will also position them for future growth. The sale will allow Asaleo to concentrate on its core, higher margin and less capital-intensive businesses in Personal Care and B2B segment. This transaction will also allow Asaleo to innovate and invest in its brands for long-term growth.
As per the Asaleo’s CEO and Managing Director, Mr. Sid Takla, the first objective of the strategic review was to drive profitable growth through Asaleo’s brands by being more consumer and customer focused. The other objective was to build a resilient business model that could deliver a sustainable, long-term growth. The management of the company believes that this transaction will deliver on both the objectives.
He also added that the inflows from the sale will significantly strengthen the Company’s balance sheet. The inflows will also reduce the net debt and improve the Company’s leverage ratio. After the completion of the Sale, the Company’s leverage ratio is expected to be at the bottom of the company’s target range of 1.5 x to 2.5x.
Asaleo Care has also announced that it has secured a principal agreement for a five-year extension to its Trade Mark and Technology Licensing Agreement (TMTLA) with Essity to 2027.
In the announcement, Asaleo has assured that it will continue to be a market leader in Personal Care and Professional Hygiene across Australasia region and also informed that more than half of the future revenues will now be generated from the B2B channel which has grown strongly over recent time. Further, this transaction will also support the overall cash generation of the company as Australian Consumer Tissue business used to consume around 30 percent of the Group’s capital spending.
In the last six months, the share price decreased by 54.38 percent as on 5 December 2018. AHY’s shares traded at $0.92 with a market capitalization of circa $339.45 million as on 6 December 2018 (AEST 1:40 PM).