Struggling food group Goodman Fielder is to ask shareholders to help it out of a tough situation: it needs recapitalising and wants $259 million.
But apart from vague reasons, there’s no decent explanation of what the company needs the money, now.
The company will do the raising at 45c a share, roughly 24% below its last traded price of 59c on Monday afternoon.
The food company said in a statement the raising should give the group greater balance sheet flexibility and added it is progressing well with its strategic review. That reportedly sparked criticism from analysts who wanted more details yesterday.
It plans to update the market again on November 17, a week before the AGM is due to take place.
The issue will be fully underwritten.
Thus far in its strategic review, the board has endorsed a plan to take the three New Zealand businesses and consolidate them into one business.
“This raising will strengthen our balance sheet so that we can drive potential restructuring and operational initiatives which may result from the strategic review…as well as pursing other value accretive initiatives as they emerge," said Goodman Fielder chief executive Chris Delaney in yesterday’s statement.
"Having the flexibility to pursue value accretive initiatives will be of benefit to all shareholders over the medium and longer term.”
Goodman Fielder shares are down 60% this year thanks to losses and a weak performance, especially in its bread businesses here and in NZ.
The underwritten 5-for-12 pro-rata renounceable entitlement offer will first be made to institutional shareholders in an offer that ends later today and to retail shareholders from October 4 to 21.
It’s no wonder the company needs the cash.
On August 19 it revealed a $300 million impairment charge to its Australian ($250 million) and New Zealand ($50 million) baking divisions.
In late August it revealed that excluding those charges, profit for the year was a weak $133.3 million.
Including the charges, the company reported an annual net loss of $166.7 million for the 2011 financial year, compared to net profit of $161.1 million in 2010.
Excluding the impairment charges, profit for the period was $133.3 million, down 17% from the $161 million earned in the 2010 financial year.
Second half underlying profit fell to around $40 million from the $69 million in the last half of the 2010 financial year as a series of factors hit the company.
Mr Delaney told a briefing with analysts later on that he had already identified $15 million in cuts in the NZ bread business.
The number of shares on issue increases by 42% under this issue, which means a big dilution for existing shareholders.
The company could have saved $35 million by not paying a final dividend.
The reason for the issue is along the line of, ‘trust us’; balance sheet flexibility is usually code for a takeover, but who would want to be taken over by Goodman Fielder in its current state?
More likely it’s to strengthen the balance sheet ahead of the results of the strategic review and more big asset write-downs to be announced on November 17.
