The Perich family will invest up to $200 million in Freedom Foods Group’s recapitalisation plans, after failing to reach an agreement with a new investor. Months of negotiations with the potential party came to naught for the group, with the business announcing today that an agreement on the terms could not be reached.
The in-principle agreement with Arrovest, FFG’s majority shareholder and the Perich family’s investment vehicle, has been backed by major lenders HSBC and NAB in an issue of secured convertible notes.
In his AGM address today (29 January), chair Perry Gunner said FFG had been working with a potential investor with a convertible note structure.
“Following detailed and in-depth negotiations over several months, this was both unexpected and disappointing,” Gunner said.
Instead, Arrovest, will commit a further $100 million, backed by major lenders HSBC and NAB in an issue of secured convertible notes.
The Perich family company had already agreed to pay $100 million towards recapitalisation. Late last year interim CEO Michael Perich said the group needed to raise up to $280 million via an ASX-listed secured convertible note to provide runway for the turnaround.
Last year significant issues were uncovered regarding inventory management, the staff equity incentive plan and other accounting matters, including not recording $372 million capital expenses as capital expenses.
Its net debt increased to $275 million and was expected to be in the vicinity of $335 million by the time of recapitalisation.
FFG said the recapitalisation will enable it to materially repay its senior term and revolving secured debt as well as provide enough working capital and stability to continue its financial and operational turnaround.
Chair elect and independent non-executive director Genevieve Gregor said at the AGM: “I clearly did not expect to be working through a situation such as this when I joined the board in March last year. But it turns out my career in banking and finance, particularly debt restructuring and turnarounds, has provided me with the ideal experience and expertise for the circumstances we find ourselves in.”
Gregor said the board prioritised options that have significant senior debt deleveraging, the least dilutive effect on existing shareholders and capital that provides the company with the best opportunity to resolve the current legal disputes it faces.
“One of the challenges with a traditional equity raising was the prospect, now the reality, of a shareholder class action and its impact on the appetite to underwrite an equity offer.
“This meant that a secured convertible note instrument, as previously flagged, was considered a better option for the company. A convertible note gives new investors an increased level of downside protection and provides existing shareholders with the potential to share in any equity upside.”
Given the time invested, Gregor said it was disappointing acceptable terms couldn’t be met.
HSBC and NAB have agreed to extend the standstill agreement until 28 February.
At the AGM, interim CEO Michael Perich said investigations had been “forensic”.
“It has covered nearly every aspect of our structure, our finances, our personnel, our operations, our systems, our governance and our culture. Much of the work has been happening behind the scenes.”
There was a fundamentally strong business at the heart of Freedom Foods - a market-leading dairy and plant-based beverages and nutritionals business with its best days ahead, he said.
