Billionaire Perich backs $200m Freedom Foods recapitalisation plan

The famed dairy family has stepped up to back a plan that should see the listed company back on the ASX this year.

Tony Perich to the rescue of Freedom Foods. Picture: David Moir 10/10/2014

The embattled Freedom Foods Group has announced a $200m recapitalisation plan backed by majority shareholder, the Perich family, via its Arrovest vehicle, but copped a strike against its pay practices at its annual meeting on Friday.

The surprise move for a recapitalisation of the business via an issue of secured convertible notes supported by the property developing and dairy farming family came after long-running talks with hedge fund Oaktree Capital Management, that proposed a $280m rescue, collapsed.

The company, which makes UHT milk, cereals, protein drinks and snacks, told investors that it was co-operating with an investigation by the Australian Securities and Investments Commission into the significant accounting problems that emerged at the company last year.

The Perich family, which has a stake of about 52 per cent in the company, intended to back the earlier recapitalisation plan but with Oaktree‘s exit it will now inject between $100m and $200m into the company via the notes.

“We have been committed supporters of Freedom Foods for 15 years and, despite the difficulties of the past year, we continue to believe in its potential to be one of Australia’s great food and beverages companies,“ billionaire shareholder and director Tony Perich said.

Investors expressed their unhappiness as the company was hit by a strike against its remuneration report with proxy votes running at 34 per cent against.

Mr Perich also copped a substantial 12 per cent protest vote against his re-election, although he had to overcome a series of proxy houses recommending against him.

Departing chairman Perry Gunner said significant changes had already taken place and he dubbed the turnaround of the business a “work in progress” but said it was advanced.

Freedom Foods sold off its cereal and snacks business to The Arnott’s Group last year and the deal will complete in March. It is now reviewing the future of its specialty seafood division, with the possibility of a divestment of that business, which would leave a company focused on dairy and nutritionals and plant-based beverages operations.

Freedom Foods plunged to heavy losses last year as its disclosed $590m of write downs in the wake of its chief executive, Rory Macleod, and chief financial officer, Campbell Nicholas, departing.

Michael Perich, who stepped in as interim CEO, flagged further changes at the company, saying it had been reviewing product lines, sites, sales channels and market segments to ensure the company focused on those with the best potential.

The deal with Arrovest has already won the indicative support of the company‘s senior lenders NAB and HSBC, and is part of a push to re-list the company on the ASX, potentially by April.

Mr Gunner, who along with non-executive director Trevor Allen, is stepping down, told the meeting that some questions could not be answered due to the corporate regulator‘s investigation and a class action launched by Slater & Gordon, which is said would be defended “vigorously”.

The company said it was not providing a forecast on its first half results but flagged further changes including a simplification of the dairy business.

Freedom Foods said the funding from the recapitalisation would enable the company to materially repay its senior term and revolving secured debt, giving it sufficient capital and a stable structure to enable it to continue its financial and operational turnaround.

Freedom did not detail why the Oaktree talks collapsed saying only it and senior lenders were not able to agree acceptable terms, which it called “unexpected and disappointing”.

It said it halted negotiations with the potential investor and requested that Arrovest, the Perich family investment vehicle, step in to cornerstone the unlisted secured convertible notes. Arrovest has agreed to invest up to $200m, with the company having the capacity to raise further capital from institutions and wealthy investors.

The final terms have not been released and the deal is subject to shareholder approvals.

Michael Perich said that despite the challenges of the past ten months, “there remains a fundamentally strong business at the heart of Freedom Foods – a market-leading dairy and plant based beverages and nutritionals business. With the ongoing support of Arrovest, our banks and other shareholders, we have the opportunity to rebuild the business and enable it to meet its full potential”.