Wattle Health Australia Ltd (ASX: WHA) announced to increase its stake to 51% in Blend & Pack Pty Ltd (B&P), a CNCA accredited dairy products processing and packaging facility, for $46 mn. This has been indicated to be achieved through a conditional agreement (i.e., SPA) that has been signed by WHA. Primarily, WHA has entered into the purchase arrangement with Mason Holdings’ subsidiary (GL Food) for the additional stake of 46%. This would be an addition to its previous existing arrangement that depicted an interest of 5% in the same company empowering WHA's vertical integration strategy ‘from the farm gate to the consumer’. After acquiring the 46% interest, WHA group’s assets will have a worth of $165 mn. The proposition also includes a Put & Call option deed to acquire a 29% interest in B&P further.
Exotix Capital, an international capital advisory firm will manage the debt funding requirements of the proposed acquisition.
The whole exercise will be conducted in tranches, wherein under Tranche 1, WHA will acquire a 46% stake in B&P. After tranche 1, the combined stake of the WHA group in B&P would be 51%. In Tranche 2, option can only be exercised by either WHA or GL Food (except in the case of a default) on the earlier of B&P achieving an EBIT of at least A$7,500,000, after the first 2 years from the date of SPA Completion; or between 45 and 48 months after signing the Put and Call Option Deed.
The exercise price under the Put and Call Option Deed is calculated based on a ratchet (or earn-out) to reflect the actual performance of the B&P business in the period up to exercise of the option.
The minimum exercise price includes up to A$9.5 million in option fees (scale depending on when exercised); A$30 million (fixed purchase price component); and up to A$46.1 million (fixed and variable earn-out component) less the amount of the option fees to be paid.
A total maximum purchase price of A$133.2 million has been indicated to be payable by WHA for the combined Tranche 1 and Tranche 2 (assuming the option for Tranche 2 under the Put & Call Option Deed is exercised and that the maximum earn out component for Tranche 2 is triggered).
Upon exercise of the Option, WHA's shareholding in Blend & Pack will increase to 80% of the issued share capital. In case, GL Food sells any of its remaining Blend & Pack shares (the subject of the Put & Call Option Deed) prior to the exercise of an option, then the maximum purchase price (other than the fixed purchase price component) and WHA's total shareholding in Blend & Pack will be lowered accordingly.
At SPA Completion (which is Tranche 1), a cash purchase price is payable by the WHA group to GL Food and the same is of the order of A$47,791,378. WHA has the right to terminate if the SPA condition precedent is not satisfied by 15 April 2019 (or such later date agreed by the parties) or there occurs a breach of the warranties prior to SPA completion.
This move is expected to be a significant one for the group as Wattle Health aims to become a globally recognized organization for offering superior quality, organic and sustainable products which endorse health and wellness at all stages of life. It uses natural constituents derived from Australia’s clean air, pure water, and organically fertile soils. It carefully prepares and packs products in ways designed to preserve nutrients by sourcing certified organic ingredients which are entirely free of pesticide or fertilizer residues. It aims to support Australian farmers who embrace these soil management practices and make the sustainable Australian goodness of certified organic health and wellness products widely available to families across the globe.
Thus, B&P’s latest renewal of CNCA (Certification and Accreditation Administration of People’s Republic of China) license will help WHA (given the latest move on enhanced interest).
On stock information, WHA last traded at A$0.990 (down about 0.503% as on February 11, 2019) with the market capitalization of A$193.53 mn. Its 52 weeks’ high level has been noted at A$2.801 and low at A$0.860. The stock’s absolute returns for 3 months and 1 year are -7.01% and -48.76%, respectively.
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