A2 Milk to raise up to $43 mln in placement   8 Oct 2015

A2 Milk to raise up to $43 mln in placement, SPP, 4 months after shelving capital raising

By Jonathan Underhill

Oct. 8 (BusinessDesk) - A2 Milk, which markets milk with a protein variant said to have health benefits, plans to raise $43 million through a share placement and share purchase plan, just months after it shelved an equity raising when its biggest shareholder expressed interest in making a full takeover.

The Auckland-based company has hired Goldman Sachs to manage and fully underwrite a $40 million placement at a floor price of 67 cents a share. It will also offer a share purchase plan to existing investors raising up to $3 million at the same price. A2 has also increased a debtor finance facility to A$10 million from A$3 million and is in talks to arrange a further bank guarantee facility of $10 million, it said.

The funds raised would be used mainly for working capital to drive growth of infant formula sales in China, Australia and New Zealand, and would hopefully deepen its institutional shareholder base, it said.

The company held cash and equivalents of about $6.1 million as at June 30, down from almost $16 million a year earlier.

In June, A2's biggest shareholder, Freedom Foods Group said it was part of an investor group with Texas-based food and beverage company Dean Foods that was contemplating a takeover offer for the milk marketer. Among the conditions of their expression of interest was that there be no change in the number of A2 shares. That triggered a disclosure from A2 that it had been in advanced stages of planning for an equity raising.

In July A2 said the proposal wasn't compelling, while also saying it had received inquiries from other interested parties. Today the company also affirmed its guidance for the 2016 year for revenue to jump 72 percent to $267 million and earnings before interest, tax, depreciation and amortisation to jump 150 percent to $12 million before one-time items.

"The equity raising is expected to raise our capital markets profile and enhance opportunities for investor participation whilst maintaining a conservative capital structure," said chief executive Geoffrey Babidge. "Together these factors are expected to provide financial flexibility to allow A2 to execute on growth opportunities."

"The performance of the ANZ and China and other Asia businesses during the first two months of FY16 was ahead of budget," the company said.

"Infant formula is emerging as a more significant and meaningful growth driver for the company than expected, with a current focus on sales in ANZ and in China," it said. "A2 is experiencing significant growth in sales of infant formula into the ANZ market as well as direct and indirect sales into China. In addition to the growth in infant formula, the prospects for growth of A2 Milk branded whole milk powder are also encouraging."

The shares have been halted for the capital raising, having last traded at 72 cents on the NZX. They have gained 22 percent in the past 12 months and are rated a 'buy' based on the consensus of four analyst recommendations compiled by Reuters.

The company will conduct its institutional bookbuild today, with the trading halt expected to be lifted before trading begins tomorrow. The SPP offer would open on Nov. 3 and close on Nov. 19.

(BusinessDesk)

Add a comment