Troubled dairy company Bellamy's has unveiled a $60.4 million capital raising as part of a major overhaul that will see it take control of a new canning facility and recast its supply arrangement with sector giant Fonterra.
Bellamy's shares were placed in a trading halt on Tuesday morning as the company announced a deal to buy a 90 per cent stake in the Camperdown Powder canning facility in Melbourne.
In a statement to the ASX, Bellamy's said the deal was one of "several key initiatives" that would "underpin the company's turnaround plan".
The transactions will deeply affect the bottom line, with the company saying it now expected to post a loss of between $9.5 million and $14 million before tax and interest (EBIT) in the second half of the financial year, having previously given guidance of a profit of between $9 million and $13 million.
It told the ASX it had signed an agreement to buy 90 per cent of Camperdown for $28.5 million, which would add "a high potential manufacturing asset at a fair price, with an opportunity to upgrade both the quality and capacity of the facility".
It said the board believed the deal "provides an opportunity to reduce key regulatory risks" and strengthened Bellamy's competitive position".
Bellamy's will pay $10.5 million in cash, and pay the remainder of the asking price in scrip by offering 3.2 million Bellamy's shares.
The canning facility, in the Melbourne bayside suburb of Braeside, is licensed as a Certification and Accreditation Administration of the People's Republic of China site, an important hurdle for selling product into China.
"The acquisition of Camperdown strengthens our strategic position by increasing control of our supply chain and the CFDA registration process," ?Bellamy's chief executive Andrew Cohen said.
"The acquisition will help build our brand credibility with trade partners and consumers. We believe this is an attractive commercial investment."
Bellamy's also told the market it had "reset" its supply agreement with dairy processor Fonterra Australia.
The binding agreement, which Bellamy's said would cost $27.5 million, would bring a number of advantages including increased operating flexibility.
Bellamy's said it would still have to pay penalties for shortfalls in production, but the new targets were more closely aligned with its growth and production forecasts.
"This is a strategic and economic reset," Mr Cohen said.
"It supports the Camperdown acquisition and investment rationale and fundamentally realigns incentives with Fonterra for future growth."
Shares in Bellamy's, a former market darling, closed on Friday before the long weekend at $5.76. During a purple patch last year shares in the business spiked above $15. In January this year Bellamy's shares bottomed out at just below $4.
The raising will be conducted as a five-for-38 pro-rata accelerated non-renounceable entitlement offer at a price of $4.75 per share. The offer is fully underwritten.
Morgans analyst Belinda Moore welcomed the Bellamy's announcement.
"I think there's a number of positives to today's announcement," she said.
"Now having the canning facility, hopefully, one: gives Bellamy's greater control of the supply chain and some hard assets which it didn't have in the past. And over time that will allow it to capture more of the margin too.
"The second component that again de-risks the business to some degree, is [that] they've amended the Fonterra supply agreement, meaning there will be less hefty payments in the future, which is good. So that should result in quite material earnings upgrades from analysts tonight, on that factor alone.
"I think management should be applauded on the job they've done to date. They are turning around the business, and there's a number of positive signs and a number of positive de-risking initiatives being announced today. Bellamy's is still a very strong brand."