Wattle is raising a ton of money to dive into organic milk; but investors are jumping out
Health & Biotech
Health & Biotech
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Wattle Health is raising $78 million to push through a joint venture with an organic dairy group — but shareholders are streaming for the exit.
On Monday morning Wattle’s shares (ASX:WHA) dived 38 per cent from $2.26 to an intraday low of $1.40 after the company said it would sell new shares at $1.25.
That’s in contrast to Kiwi dairy formula maker Bioxyne (ASX:BXN) which jumped 36 per cent today after expanding its distribution across south-east Asia in a new deal.
Infant formula has been one of the ASX’s hottest themes in recent times with the likes of Longreach Oil, JatEnergy, and Aus Dairy Farms joining more established plays such as a2 Milk, Bubs and Bellamy’s.
Wattle signed a joint venture with the Organic Dairy Farmers of Australia (ODFA) and Niche Dairy to design, construct and operate an organic spray drying facility in Australia.
Wattle is on the hook for $63 million for its 45 per cent of the joint venture, while Niche is to pay the remaining $7 million or its 5 per cent.
ODFA owns half of the new Corio Bay Dairy Group and will supply up to 46 million litres a year of fresh milk.
The deal will see Wattle directly competing with Australian Dairy Farms (ASX:AHF) which is also aiming to become a vertically-integrated organic milk powder producer.
But where Aus Dairy is focused on Australia (boss Peter Skene believes the next 5-10 years will be a boom time for organic milk in this country), Wattle is looking to China.
It signed a deal in April with International Supplied and Distribution Company to sell its milk on mainland China.
Wattle company secretary and finance manager George Karafotias told Stockhead products from the new factory will be sold in Australia, China and “all over the world”.
He says the factory build will take 12-15 months and first products are expected by October next year.
It won’t mean Wattle will go entirely organic, but its nutritional diary range will be.
Cap raise causes shares to plunge
After initially plunging on the news, Wattle shares recovered somewhat to $1.78.
Wattle is raising the cash it needs via a $20 million loan, a $37.9 million entitlement offer to retail shareholders, and a $20 million institutional placement that’s conditional on strong take-up of the entitlement offer.
The new Corio Bay Dairy Group’s facility will be in Geelong, Victoria on land next to ODFA’s existing processing operations.
The spray drying facility is planned to have the capacity to process up to 200,000 litres of milk a day and will cost $55 million.
Wattle and Niche will collectively loan the new company $70 million to get it off the ground.