McPherson's chairman urges shareholders to reject "utterly opportunistic" takeover bid

McPherson's chairman urges shareholders to reject "utterly opportunistic" takeover bid

Shareholders in health, wellness and beauty products company McPherson's (ASX: MCP) have seen their fortunes drop following a hand sanitiser inventory bungle, underwhelming online sales in China and a CEO departure, but leadership is calling on them to be patient and not head for the exits.

The company's directors issued a target statement today unanimously recommending shareholders reject an on-market takeover offer from a subsidiary of Raphael Geminder's Kin Group, which has sought to acquire McPherson's for $172 million.

The offer price of $1.34 represents a 9.8 per cent premium to the previous close before the takeover attempt was announced, but is a far cry from the $3.40 high in August before everything went south.

On 25 March, Kin Group subsidiary Gallin took a 4.95 per cent stake in McPherson's and launched its takeover bid calling for urgent strategic and operational change, accusing McPherson's of "significant missteps and a poorly executed Chinese market channel strategy".

Red flags were raised for investors in October when McPherson's announced it had to write down $5.7 million worth of hand sanitiser inventory.

The company had tried to capitalise on COVID-driven demand for the product, but its new supplier delivered the hand sanitiser later than required and its customer cancelled most of its orders, leaving McPherson's with a "significant quantity".

This led to a first quarter loss before tax of $2.8 million, compared to a $1.6 million profit.

After a substantial fall in the share price, McPherson's announced it would be acquiring Global Therapeutics from Blackmores (ASX: BKL) for $27 million, backed by a $36.5 million fully underwritten institutional placement followed by a $10 million share purchase plan.

At $2.27 per share, the SPP came close to hitting its target with $9.4 million raised, but it wasn't long before McPherson's issued bad news again on 1 December, reducing its sales forecast after a Chinese partner Access Brands Management (ABM) explained its Single's Day online trading event was below expectations.

McPherson's withdrew it's full-year FY21 guidance and shares plunged 46 per cent in one day, prompting the departure of then CEO Laurie McAllister on 9 December.

It was against this backdrop, as well as a 79.7 per cent year-on-year fall in the December half net profit after tax (NPAT) to $1.2 million, that Gallin made its move.

"McPherson's is a business that has lost its way and is in urgent need of reinvigoration across its strategy, governance, and leadership," Gallin director Nick Perkins said last month.

"The company's performance has disappointed shareholders for some time despite owning a number of quality, attractive brands across key consumer markets.

"Now investors face a further extended period of uncertainty, including a lack of visibility on the current performance of sales of the Dr. LeWinn's product range into China."

Gallin also claimed McPherson's had a "relatively poor" merger & acquisitions record and a history of recognising "one-off" adjustments.

"Although highly uncertain and with no guarantee of success, McPherson's urgently needs to undertake a full operational and strategic review with a view of turning around the business," Perkins said.

"We have the capital, capability, wherewithal and patience to do this, while shareholders have an opportunity to receive cash now at an attractive premium."

The immediate response from McPherson's was to make its interim CEO Grant Peck a permanent fixture in the role and as managing director, calling on shareholders to take no action on the "utterly opportunistic" and "inadequate" takeover offer.

With the offer set to close on 10 May, McPherson's has reinforced its message today with a 48-page target's statement calling on shareholders to reject the offer, asking them to wait for the outcome of operational review that will be released in May. 

The review is looking into a number of new product development and innovation opportunities for McPherson's' owned brands, and the potential for accretive acquisitions.

"The offer has been opportunistically timed to exploit McPherson's recent share price weakness following a period of challenging trading conditions," McPherson's chairman Graham Cubbin said in a letter within target's statement.

"The MCP board's view is that the offer does not reflect the long-term value of your MCP shares and that Gallin is implementing a hostile strategy to achieve control or partial control of the company without paying MCP shareholders a fair premium l [sic] for control.

"The directors recommend that shareholders await the findings of MCP's operational review in May 2021 to ensure they have a full picture of the company's strategy to deliver growth."

He said the offer "profoundly" undervalued McPherson's and did not reflect its strong brands - which include Dr. LeWinn's, A'kin, Glam by Manicare, Lady Jayne and Sugar Baby Australia - or underlying business.

"McPherson's has a strong portfolio of market leading owned brands and has created significant shareholder value through product innovation, research and development, channel optimisation, marketing investment and an active portfolio approach including mergers and acquisitions," Cubbin said.

"McPherson's recent investment in Fusion Health is yet to be fully integrated into the business and by selling your MCP Shares, you will lose the opportunity to participate in any upside from investment in this key new health pillar to the business.

He said McPherson's had significant balance sheet strength and operational capacity to invest in our owned brands and enter adjacent categories.

"By selling your MCP shares to Gallin on market, you will lose the opportunity to participate in any potential upside in McPherson's," Cubbin warned.

"Shareholders who sell their MCP shares to Gallin will not benefit from any future growth and any share price improvement above recent lows.

"Furthermore, they will not benefit from any subsequent superior offer from Gallin or another third party, should one emerge."

He also claimed that if Gallin were to acquire sufficient shares to appoint its own directors, the future investment and risk profile "may be at odds with current shareholder preferences".

"While McPherson's suffered challenging trading conditions in H1 FY21, in large part due to factors relating to COVID-19, your Directors have full confidence in management's ability to execute its Health, Wellness and Beauty strategy and deliver strong results in the future," Cubbin said.

"Your directors and management intend to continue to operate McPherson's for the benefit of all shareholders."

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