Comvita chief executive Scott Coulter has hinted at a possible overseas takeover, after the natural health products company announced today it is party to a confidentiality agreement with a third party.
Mr Coulter told NBR the overseas sale of New Zealand companies “is the natural order of things” and a “compliment to New Zealand.”
“As New Zealand brands develop, get a critical mass and grow overseas they get noticed by bigger companies. It’s a positive thing for Comvita because it’s been noticed, and the fact that someone is interested in us means they like what we are doing.”
In the same NZX statement today, Comvita says its after-tax operating earnings for the financial year ending June 30 are likely to be downgraded from $17.1 million to the range of $8-11m.
Due to the share-price sensitivity of the forecast downgrade, the board felt it was obliged to also announce the potential takeover discussions.
“This process, which has been ongoing for several months, is to enable the third party to assess the potential acquisition of all or substantially all the shares in Comvita, whether by way of takeover, scheme of arrangement, amalgamation or other business combination,” it says.
In 2011 Cerebos, a global coffee and food conglomerate, offered a $2.50-a-share takeover, valuing Comvita at $71.6 million. However, the company labelled the offer as “unwelcome, opportunistic” and considerably under value. Comvita shares climbed 50c or 23.8% to $2.60 on the NZX in response to that takeover offer.
By contrast, shares dropped 3.16% to $6.75 after today’s announcement.
Due diligence process with potential acquirer
Comvita chairman Neil Craig says Comvita is party to a confidentiality agreement with the unknown third party, which is doing due diligence on Comvita.
“While the board believes this due diligence process is moving toward a conclusion, the possible acquisition remains, for now, an incomplete transaction and there is no certainty that any offer will be forthcoming."
Mr Craig says the board cannot provide any further comment or guidance at this stage but will update the market by mid-May.
The chairman stressed the third-party approach was, and remains, an “incomplete proposal.”
Bad weather impact
Comvita's flagship manuka honey business has been unstable as weather conditions affected honey production.
Despite a disastrous honey season last year, the Bay of Plenty-based company announced a turnaround in profit in the six months to December 31, 2017, with profit touching $3.7m, from an after-tax loss of $7.1m for the same period in 2016.
The company had downgraded its forecast twice early last year, first in January when shares slid 18% to $6.40, which is half of the $12.80 high it reached in May 2016.
In April it announced it expected an after-tax operating loss in the order of $7m in the year ending June 30, 2017. Shares dropped 14% to $7.40 as a result.
In February, chief executive Scott Coulter signalled the weather conditions during the second half of the season had not been favourable to honey production. Mr Coulter said the company expected honey crop volumes to be below average.
“The weather for the rest of February and early March continued to not be conducive to honey production and the anticipated late harvest did not eventuate.
“We had strong winds and rain, and three cyclones came through this summer.”
The company completed 80% of the extraction for the season and tested 50% of its honey, with about half the yields it had originally budgeted.
“This poor harvest has a direct impact on our apiary business profitability for the current financial year ending June 30, 2018. The direct financial impact on our forecast position for the year is in the order of $8m after tax,” Mr Coulter says.
He says the company diversifies hives regionally in hopes of at least one good harvest a year.
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