British billionaire Joe Lewis will increase his stake in Australian Agricultural Company to almost 20 per cent as the cattle company looks to raise $299 million to shore up its stretched balance sheet.
The Bahamas-based Mr Lewis, who owns English Premier League club Tottenham Hotspur, has backed the board at a time when other major investors are selling down or not taking up entitlements.
The raising, which will be used to pay down debt and fund construction of its $91 million Darwin abattoir, consists of a $219.2 million entitlement offer and $80 million in convertible notes.
AACo chairman Donald McGauchie said the raising would strengthen the company’s balance sheet and accelerate its integration strategy.
“While AACo’s fundamentals remain strong, a highly cyclical market and constrained capital structure has not allowed the company to capitalise on its asset base,” he said.
AACo has a history of poor returns and weak cash production, and the stock has often traded below its asset value since it listed in 2001.
There will be a 7-for-10 accelerated, non-renounceable entitlement offer issuing 219.2 million new AACo shares at $1 each, raising approximately $219.2 million.
The issue price represents a 9.1 per cent discount to the theoretical ex-rights price and is fully underwritten.
Joe Lewis, who already owned 13.5 per cent of AACo, will take up his $29.6 million entitlement in full and provide a sub-underwriting commitment of a further $34.6 million.
Mr Lewis’s AA Trust will subsequently own 19.99 per cent of the company. However the AA Trust stake could rise to 29.2 per cent assuming the $80 million convertible note issued to the Trust is converted at its maturity in 2023.
The almost $300 million in new capital will be used to fund the remaining $67 million cost of building the Darwin abattoir, with $20 million of further working capital requirements. Senior debt will be reduced by $205 million, taking the company’s gearing from 40.9 per cent to 23.5 per cent.
Mr McGauchie said the company could not afford to be purely a primary producer and needs to focus on value adding.
“It’s very important to improve returns on capital and we aim to have a company worth well in excess of its parts,” he said.
The IFFCO-Felda joint venture has opted not to take up its entitlement for the second time, and its 16.9 per cent stake will be diluted.
Source: Stock Journal
