The Wattle Health Australia Ltd (ASX: WHA) share price has returned from its trading halt and pushed higher.
At the time of writing the baby food and infant formula company's shares are up 5%, but were down 10% to a 52-week low of 45.5 cents in early trade.
Why was the Wattle Health share price halted from trade?
Wattle Health's shares had been halted for around a week whilst it sought to secure the funding of its acquisition of the majority stake in Blend and Pack.
This morning the company announced that it has signed a revised debt facility term sheet for net cash funding (before expenses) of up to US$85 million with US-based emerging markets investment manager, Gramercy.
According to the release, this replaces the prior term sheet signed with Gramercy which provided for net cash funding (before expenses) of up to US$75 million.
The release explains that the proposed Gramercy debt facility will have a term of four years with a coupon rate of 9% per annum and an OID of 13%. On closing, Gramercy will advance US$65.4 million to Wattle Health and the balance of unused funds will attract a coupon rate of 3%.
The release also advises that Gramercy will be paid initial establishment fees and be issued approximately 16.15 million ordinary Wattle Health shares to be held in escrow for the earlier of the term of the loan or earlier repayment. And if Wattle Health draws in excess of US$75 million under the revised Gramercy loan facility, it will issue up to 5.425 million more shares to Gramercy.
Management decided to take this option because they felt it would limit dilution to shareholders, compared to an equity issuance which was considered to be potentially very dilutive.
However, the Gramercy term sheet is non-binding and still remains subject to final due diligence and documentation.
What is Blend and Pack?
Blend and Pack is the largest independent, nutritional dairy processing and packaging business in Australia based on volume and was one of the first Australian manufacturers to obtain Certification and Accreditation Administration of People's Republic of China (CNCA).
The company successfully renewed its CNCA accreditation in January 2019 for a further four-year period.
It processes dried dairy products for major domestic and international nutritional dairy companies and has a track record of positive earnings.
Wattle Health appears to be following in the footsteps of Bubs Australia Ltd (ASX: BUB) which recently acquired canning facility Australia Deloraine Dairy. Bringing this in-house is expected to be a major boost to Bubs' margins.
However, judging by the wild share price swings today, Wattle Health shareholders don't appear completely convinced by the deal or the sizeable debt the company will be carrying.
Elsewhere in the industry, the shares of A2 Milk Company Ltd (ASX: A2M) and Bellamy's Australia Ltd (ASX: BAL) have both pushed higher today.
