Comvita expects to realise $30m from sale of Medihoney, shares in US partner

Comvita CEO Scott Coulter
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Comvita, the manuka honey products company, has sold its Medihoney brand to US partner Derma Sciences for about $19 million, and will reap a further $11 million selling Derma shares in a takeover offer of the Nasdaq-listed company.

The gross proceeds of the Medihoney deal will amount to US$13.25 million, with a US$5 million earnout payable on sales milestones being achieved, Comvita said in a statement to the NZX. Comvita also owns 1.1 million shares in Derma Sciences, which announced on Jan. 10 that it will be acquired by Nasdaq-listed Integra LifeSciences for US$7 per share by the end of March. That values Comvita's stake at about $11 million, it said.

Derma Sciences already held the exclusive global rights to Medihoney wound care products, and in 2016 paid $2.1 million to Comvita in royalties for the use of the brand and trademarks. Those royalties will stop when the sale is completed.

Comvita will retain the use of the brand to develop its over-the-counter business, particularly for products to treat eczema, while Derma Sciences will hold the regulatory approvals to make products to European and US medical device quality standards. The deal also includes a 10-year honey supply agreement between the two.

The Te Puke-based company told shareholders in October that it expects to post a loss for its first half, ended Dec. 31, after tough trading and significantly lower sales in the first quarter due to the impact of regulatory changes in China. It expects a full-year profit of $17.1 million, entirely produced in the second half. In August 2016, Comvita posted a 15-month profit of $18.5 million after changing its balance date. Comvita previously reported a profit of $17.2 million in the 12 months ended March 31, 2016.

In 2013, Comvita raised about $9 million selling about 2.3 million new shares to Derma at $3.90 apiece, a 3.7 percent discount at the time, giving Derma a 7.3 percent stake while its chief executive Edward Quilty joined the Comvita board. Derma ceased to have a substantial shareholding in Comvita in May 2016, selling down to 4.7 percent of the company at $12.06 per share.

Comvita shares last traded at $8, up 0.9 percent today. They have declined 7.6 percent in the past year, having peaked at a record $12.85 in May 2016, after the company joined the NZX50 Index in April, but falling back over the remainder of the year. Derma shares last traded at US$6.95, up 33 percent this year having disclosed their acquisition by Integra.

(BusinessDesk)


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8 Comments & Questions

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I really don't understand the rationale for this deal? Sell the Medihoney brand which returned $2.1 million in royalties last year for $19 million. Why?

I can't help but thinking there are similarities between Comvita and Bellamys. Going to be an interesting year for this company.

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Downgrades comes in 3's, so might be a buying opportunity at some point. Certainly hope CVT doesn't do a cliff dive like Bellamy did yesterday!

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Agree on the face of it this doesn't make a lot of sense. Medihoney has tremendous potential going forward too as the effectiveness of antibiotics continues to decline.

A source of mine said to me Comvita have a very high stock level of low grade manuka honey they are struggling to shift, maybe they need the money ? (Certainly their stock level at balance date raised my eyebrows)

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Go to any Asian owned heath product and souvenir shop in Auckland and ask for Comvita honey. You will find that the attendants will push you towards other brands with UMF certification - selling the point that they are the same and 10% to 20% cheaper than Comvita. And they are succeeding.

Classic marketing and promotional backlash underway.

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My understanding is manuka honey is on the radar of the Chinese authorities. So no doubt will have an Impact. But might be positive as it will deal with fake honey and the grey market.

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The Chinese honey market is in a sad state of affairs.

Someone said to me once that NZTE was his biggest competitor. This could not be truer with honey

NZTE garnered and gathered every one with a hive in NZ. Told them to brand it and sell it China. They even funded many groups on in market trips (as did the government via other grants). All this did was compete and cannibalise the market for all the existing players who spent years building a reputation and a network (at their own cost I might add)

Now what we are left with is about 100 or so exporters all competing against themselves.

In my opinion NZTE single handedly destroyed the honey market. I can't help but believe and agree with my friends comment. If you are an established honey player. NZTE truely is your largest competitor

The government should stick to market access and overall product awareness.

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You are correct re NZTE.
Have people ever wondered why there is no science showing the difference between the efficacy of "manuka honey" and other honey?
I personally have used honey on animal wounds for fifty years and have never bothered about where the bee collected the pollen.
So why no science showing us the difference?

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A lot of it is verging on quackery

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