Infant formula company Wattle Health Australia Limited's (ASX: WHA) share price remained flat in today's trading session, following an update on the company's proposed acquisition of Blend and Pack.
What did Wattle announce?
In the update, Wattle Health announced that it has signed an extension with Hong-Kong listed company Mason Group Holdings until the 31st of July, 2019 for the completion of its acquisition of Blend and Pack (B&P).
The update follows an announcement made by Wattle Health on the 9th of May, in which the company announced its intentions to finalise a funding package and obtain shareholder approval for the proposed acquisition of B&P. In its pursuit to become a vertically integrated company, Wattle Health looks to acquire an extra 75% of B&P for $US55 million, taking its total holding in the company to 80%.
B&P is the largest (by volume), independent nutritional dairy processing and packaging business in Australia. B&P is also one of the first Australian manufacturers to obtain Certification and Accreditation (CNCA) from China, which it successfully renewed in January 2019. Currently, B&P processes dried dairy products and has a number of contracts with local and international firms, with projected revenue for 2019-2020 of more than $31 million.
What this means for Wattle
Currently, Wattle Health is in a joint venture with Organic Dairy Farmers of Australia to construct an organic milk powder plant in Victoria. The acquisition of B&P would mean that Wattle Health could become the only vertically integrated nutritional dairy company in Australia. This means that the company can control every part of the supply chain, from production at the dairy farm to selling to the end consumer. By acquiring B&P, Wattle Health secures a critical distribution channel to the blossoming Chinese middle class, where demand is high for organic and nutritional Australian dairy products.
After listing on the ASX in 2017 at 20 cents, Wattle Health quickly became a market darling reaching a high of $2.80. In 2019, poor cash flow, heavy spending on production facilities in Victoria and the launch of an ambitious organic formula brand Uganic, has seen the Wattle share price plunge, with shares now trading at 54 cents. Earlier this year Wattle Health did not impress the market, with its March quarter cash flow statement. Wattle reported receipts from customers for the 3 months of $163,860 and negative cash flow at $1.57 million indicating that the business is still in the building phase.
