Asaleo backs up takeover rejection with earnings upgrade

Asaleo Care has rejected a $670m takeover play from its biggest shareholder, and lifted its earnings outlook for the year ahead.

Asaleo chief executive Sid Takla said the business performed well during exceptionally challenging year.

The board of consumer goods company Asaleo Care has rejected the $670m takeover play from its biggest shareholder, Swedish conglomerate Essity, labelling the bid inadequate and backing up that stance with an profit upgrade.

Asaleo on Wednesday said the bid “fundamentally” undervalued its business and was “materially inadequate”.

Essity is the world’s second-biggest producer of tissues and in December made the grab for control of Australian-listed Asaleo Care, whose key consumer health brands are already owned by Essity and produced in Australia and New Zealand under licence.

Essity is listed on the Swedish stock exchange and is Asaleo Care’s biggest shareholder with a stake of 36.6 per cent. Two of Asaleo’s biggest money spinners, Tena and Tork, are owned by the Swedish company.

When Essity launched its bid for Asaleo in December the offer, priced at $1.26 per share, was viewed by many shareholders in Asaleo as inadequate and too low.

Asaleo’s second biggest shareholder, funds manager Allan Gray, tagged the bid as undervalued and said at the time it would reject the offer.

Now, that bid has been rejected by the Asaleo board and its position has been strengthened by an earnings update that includes an improving profit outlook that is based on growth momentum through 2020 in what was a challenging market.

In its trading update Asaleo revealed unaudited annual revenue of $419.2m, up 2.3 per cent, for the year to December 30 — following growth of 3 per cent in 2019.

The company, whose brands include toilet paper, incontinence pads, wipes and feminine hygiene products under names such as Tena, Sorbet, Libra, Handee Ultra and Tork, said strong performance in all retail segments and B2B incontinence healthcare, were collectively up 6.7 per cent in the year.

B2B professional hygiene (brands sold into aged care and other facilities) were solid, down only 4 per cent despite the impact of COVID-19 restrictions on “away from home” activity.

Asaleo Care’s retail segment grew strongly, with feminine care up 12 per cent and incontinence 10 per cent. Consumer tissue in New Zealand grew 3 per cent, with the branded business up 7 per cent.

Asaleo said it expected underlying EBITDA $87.2m for 2020, ahead of previous guidance of upper end of $84m-87m. It was expecting to book underlying EBITDA of $89.2m from continuing businesses up 6.3 per cent.

The consumer goods company said the outlook for 2021 and 2022 also looked rosy with it targeting continued revenue growth from 2021 and margin expansion from 2022. Asaleo said in 2021 it is targeting 5 per cent to 7 per cent revenue growth and EBITDA of $90m to $93m.

In 2022 it is targeting mid-single digit revenue growth and EBITDA growth of above 10 per cent.

Asaleo chief executive Sid Takla said the strong performance in an exceptionally challenging 2020 was a testament to the resilience of the business. “Ongoing investment and innovation in our core brands, coupled with strong execution of our plan, enabled us to deliver continued revenue growth and market share gains across our core categories. This has set Asaleo Care on a clear path towards sustainable future growth in 2021 and beyond.”

In rejecting the takeover offer from Essity, Asaleo said the proposal undervalues the company on a stand-alone basis.

“Asaleo Care has reset the business for long-term value creation including the exit of low margin, capital intensive businesses, and has materially increased investment in its core brands to drive revenue and market share growth,” it said in an ASX statement.

It said the company is on a clear path towards sustainable future growth and continued to target initiatives which create sustainable and profitable growth.

“The proposal should reflect the strategic and financial benefits an acquisition would deliver to Essity. It added that key shareholders are unsupportive of the proposal and Asaleo Care shares continue to trade above the offer price.

Asaleo chairman Harry Boon said, “The independent board committee, after careful review, considers that the proposal fundamentally undervalues Asaleo Care, is materially inadequate and does not reflect the strategic value of the company to Essity. However, the committee remains open to further engagement.”

Asaleo shares were down 0.8 per cent at $1.27 in late morning trade.