Latitude, Humm ditch BNPL deal after share market turmoil

‘The continued erosion of the Latitude share price had eroded the deal’s economics,’ said the buy now, pay later minnow’s chairman Christine Christian.

Latitude chief executive Ahmed Fahour. Latitude will not proceed with the purchase of Humm’s buy now, pay later business. Picture: Ian Currie

Humm still believes the combination of buy now, pay later players is compelling despite the collapse of plan to sell its consumer finance business to Latitude Financial, the company’s chairman says.

Christine Christian said the Humm board was no longer able to recommend the sale of the business in a deal that would have included 150 million Latitude shares and $35m. The transaction would have been valued at some $350m when struck, but recent falls in the Latitude share price meant it had fallen to $245m on Thursday.

The Australian’s DataRoom column reported earlier this week that there was mounting speculation that the deal – opposed by Humm’s major shareholder Andrew Abercrombie – would collapse as early as Friday.

Latitude shares declined more than 19.8 per cent over five days. They fell 3.6 per cent on Friday to close at $1.35. Humm shares fell 20 per cent – or 11c – to close at 46c.

“These are unprecedented times; there is extreme volatility in the market, we’ve seen the tech sell off, the BNPL crunch and rising funding costs and while we believed the strategic rational (of the deal) was compelling, it was not at any price,” she said.

”The continued erosion of the Latitude share price had eroded the deal’s economics.”

Ms Christian and the Humm board had repeatedly stressed the poor performance of the consumer finance business, including as late as Thursday when the company warned its BNPL division was under “significant pressure”.

Cash net profit after tax for the consumer division, for the fiscal year-to-date was expected to be $17.3m, compared to $44.3m for the same period last year.

Despite this, volumes continued to increase – rising from $1.94bn to $2.22bn in that period.

Part of the pitch to investors was that the sale of BNPL to Latitude would give the merged business scale to compete with larger rivals including Afterpay – now owned by Block – and Zip Co.

“The strategy was to sell the bsiness so we could enjoy the synergies and the scale,” Ms Christian told The Weekend Australian in an interview on Friday.

“For us its about building scale ourselves. Its fair to say we’ve got a number of challenges – interest rates are on the rise and there is intense competition.

“ We will focus on restoring the business to profitability and we are one of the only stable players in the sector at this point. We are strongly capitalised, we have unrestricted cash, so we’re in a very good space to restore the business to profitability,” she added.

The sale of the consumer finance business was opposed by Mr Abercrombie, a former chairman and the company’s largest shareholder. Mr Abercrombie remains on the Humm board.

Relations between Mr Abercrombie and the board have been increasingly fraught, mired in allegations of self-interest. Ms Christian last month accused Mr Abercrombie of “stringing shareholders along” for his own gain.

“He is also telling shareholders that Humm would be a consolidator in the sector – but he has not provided any plan for how Humm would realistically seek to fund these consolidation plans and create shareholder value,” she said at the time, in response to criticism from Mr Abercrombie about the sale price agreed to by Humm.

In a statement on Friday, Mr Abercrombie said the deal had undervalued the company.

“I wanted to achieve the best outcome for shareholders and I thank them for their support,” he said. “I look forward to maximising the full value of Humm for shareholders, our customers and our people ... the terminated deal has inhibited progress for HCF but also produced some positive outcomes. I ask shareholders for patience and am confident this company has a bright future.”

Ms Christian, in the interview on Friday, said she “still believes the combination of two strong players is compelling, but we were no longer able to recommend the deal to shareholders”. “We will focus on the products that are profitable, but it will be very much the strategy that Latitiude was going to adopt,” she said.

In respect of Mr Abercrombie, Ms Christian said: “Everyone is entitled to their opinion, we’ve never silenced Andrew and we’ve always worked hard to ensure his point of view was available to shareholders”. “He has his view and all I could do was put all of the facts before the shareholders and ... we are where we are,” she added.

Latitude, in an ASX update on Friday morning, said the deal would not proceed “in light of the current major disruption in financial markets”. The Ahmed Fahour-led company said the two parties had “mutually agreed to terminate the proposed sale”.

“BNPL represents less than 1 per cent of Latitude’s revenue and receivables,” the company said in its ASX statement. “Latitude is experiencing good organic volume growth, is profitable and well capitalised to execute on a number of opportunities ahead.”

The combined Humm consumer finance and Latitude businesses would have been one of the largest in Australia, with gross receivables of $8.4bn and around 82,000 merchants.