The Bega Cheese Ltd (ASX: BGA) share price is frozen in a trading halt following the announcement of an institutional capital raising and share purchase plan.
Bega share price
In an announcement to the ASX, Bega Cheese said it will undertake a $122.5 million institutional capital raising and a share purchase plan for retail investors which will raise up to $37.5 million.
Around 15% of the company's issued capital will go to institutions at a price of $5.35 per share – 10% less than yesterday's closing price.
Bega Cheese's leadership team is offering its retail shareholders, including small mum and dad investors, a maximum of $15,000 shares at $5.25 per share subject to a scale back.
The company said it will use the proceeds to strengthen its balance sheet as it looks build scale.
"This capital raising gives us the financial strength and flexibility to grow our dairy and food businesses as part of our vision to be a great Australian food company," Executive Chairman, Barry Irvin, said.
Bega Cheese recently acquired the Mondelez Grocery Business, which includes Vegemite, peanut butter, salad dressing and cheese, for $460 million. It also sold an infant formula plant and spray dryers to Mead Johnson for $200 million which helped it counter the financial effect of the Vegemite deal.
Foolish Takeaway
Bega Cheese's offer appears to be acceptable. However, here at The Motley Fool, we are always cautious of companies which issue lots of shares to institutions. If they (the institutions) were genuinely interested in owning parts of your company, why didn't they own shares before?
A company's board of directors have a responsibility to treat all of its existing shareholders equitably — not scout for new shareholders at their expense. A pro-rata renounceable rights issue is the fairest way for any company to reward existing shareholders and raise capital.
