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The majority of Humm’s (ASX: HUM) board has quit following the collapse of a $250 million cash-and-scrip deal with consumer finance group Latitude (ASX: LFS).
The transaction, which would have seen Humm’s buy-now-pay-later (BNPL) consumer business handed over to LFS, was ditched five days ago by mutual consent despite most of HUM’s board seeing “significant strategic merit” to the agreement.
In an ASX announcement released today, the majority of directors said they could not remain on the board with Humm founder and shareholder Andrew Abercrombie, who believed the deal was undervalued. In anticipation of voting against the proposal, Abercrombie built up his shareholding, which currently stands at roughly 22.5 per cent.
While Alistair Muir and John Wylie have resigned from their roles effective immediately, Carole Campbell, Rajeev Dhawan and chairman Christine Christian will leave the company once their replacements are appointed.
Christian, who expressed support for the acquisition, released a letter to shareholders yesterday criticising Abercrombie’s strident campaign against the sale.
“Much of the commentary he published was emotion-driven, inflammatory, and provided little clarity on what precise future strategy he envisages for Humm consumer finance (HCF), or on what basis he believed Latitude were going to pay more for HCF,” Christian said to shareholders.
“The majority [of] directors believe Abercrombie overplayed his hand quite fundamentally in a transaction that could have been very beneficial for shareholders.
“The near 30 per cent increase in the Humm share price to 93c when the transaction was first announced underscores the initial very positive market assessment of this deal before his negative campaign began.”
The ditched deal, which comprised $35 million in cash and 150 million Latitude shares, equated to $335 million in full consideration when the sale price was initially agreed upon but came closer to $250 million based on the $1.40 closing share price on 16 June.
The transaction was scrapped after Humm warned that its BNPL business remains under significant pressure, with cash net profit after tax plummeting 61 per cent over the fiscal year-to-date to May.
On 15 June, the board released a statement addressing Abercrombie’s criticisms of the offer and confirmed that the BNPL business is not profitable and HCF is not growing.
Humm’s BNPL business reported a cash NPAT loss of $9.7 million for the six months ended 31 December 2021, which most of Humm’s board said would be amplified by increasingly challenging economic conditions and HCF’s lack of scale.
Preliminary financial results released at the end of May confirmed HCF had also not been profitable in the four months to 30 April.
“There is a material risk that Humm’s share price will fall significantly if the HCF sale is not approved by Humm shareholders," Humm said to shareholders before the deal went sour.
"Abercrombie has not referenced this material risk. The majority directors also believe that the strong performance of Humm’s commercial business could be negatively impacted if the HCF sale does not proceed.
"The stakes here are extremely high."
In her most recent letter to shareholders, Christian said the board attempted to ask LFS for a higher offer before scrapping the vote.
“This has undoubtedly been a difficult period for the company, its shareholders and employees,” she said.
“I want to assure you however that the majority directors have acted in the best interests of shareholders at all times and sought to secure outcomes which would improve shareholder value which has diminished substantially in this company over the past ten years - all of which time Andrew Abercrombie has been on the board, the company’s largest shareholder, and for a substantial period of which also the chair.”
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