Vitaco Holdings Ltd shares surge on takeover bid: What you need to know

Vitaco Holdings Ltd (ASX:VIT) will be acquired by a Chinese based consortium for $2.25 per share.

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Shares of nutritional products business Vitaco Holdings Ltd (ASX: VIT) are flying higher today after the company entered into a Scheme Implementation Deed with a Chinese-based consortium to acquire 100% of its shares.

The consortium members are Shanghai Pharma, a pharmaceutical group with a market capitalisation of $10.1 billion, and Primavera Capital, a leading Asia-based investment firm.

The board of directors have put their full support behind the $313.7 million deal that values the company at $2.25 per share – a 27.8% premium from yesterday's closing price. The deal is also a 7% premium from Vitaco's September 2015 IPO price of $2.10.

Vitaco's chairman, Greg Richards said in the announcement: "The Scheme represents attractive upfront and certain value for shareholders, particularly given ongoing volatile macroeconomic conditions and regulatory uncertainty in China".

The deal has also received support from one of Vitaco's biggest shareholders, Next Capital, who owns 15.3% of the shares.

Vitaco also provided its preliminary financial results for FY16 that showed the company delivered revenue growth of 23.5% to $212.9 million. Earnings were in line with the prospectus forecast with pro forma NPAT and EPS of $13.1 million and 9.4 cents per share, respectively.

While this was a solid performance, the deal is likely to get the support of other shareholders based on the somewhat subdued outlook for FY17 provided by management. Vitaco stated that it expects only modest earnings growth in FY17 "due to additional business investment required to support longer-term growth, the impact from the loss of the Trilogy contract and continued regulatory uncertainty in China".

Vitaco has committed to increasing its operating costs by increasing its marketing spend and staff numbers in an attempt to gain further penetration into the Chinese market. There is also the potential for higher capital expenditure with the company looking to expand its manufacturing and warehousing footprint in Auckland.

Judging by the reaction of investors to other companies operating in the Chinese consumer sector like Blackmores Limited (ASX: BKL) and Bellamy's Australia Ltd (ASX: BAL), today's announcement has highlighted the point that there may be further takeover offers down the road from Chinese based consortiums. Shares of Blackmores and Bellamy's have surged 3.5% and 5.1%, respectively, although investors should note that these two companies are much larger and trade at significantly higher valuations than that of Vitaco.

Nevertheless, today's announcement highlights the point that Australian-based products remain in high demand from Asian consumers and that this is likely to remain a growth story.

Motley Fool contributor Christopher Georges owns shares of Blackmores Limited and Vitaco Holdings. The Motley Fool Australia owns shares of Bellamy's Australia. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »