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Wattle Health announces deal with Chemist Warehouse

baby formula shares

The Wattle Health Australia Limited (ASX: WHA) share price may still be suspended, but that hasn’t stopped it making an announcement today.

The struggling infant formula company’s shares last traded on the ASX at the end of September.

What did Wattle Health announce?

This morning Wattle Health announced that it has entered into a 10-year supply agreement with Chemist Warehouse for its full certified organic nutritional dairy range.

This includes its premium range of Uganic infant formula and the Little Innoscents organic skin care range.

According to the release, Chemist Warehouse will commence with nine product SKUs across the Uganic and Little Innoscents product ranges.

Under the agreement, all the Uganic and Little Innoscents product range will be sold across its retail stores and its online Tmall stores.

This is a promising agreement for the embattled Wattle Health. Chemist Warehouse is the largest pharmacy chain in Australia by total sales. It generates over $5 billion annually from more than 450 stores in Australia, New Zealand and China.

Chemist Warehouse also operates the largest Tmall store in the world based on gross merchandise volume.

Wattle Health Australia Limited CEO and co-founder, Lazarus Karasavvidis, was very pleased with the agreement.

He said: “It’s an important addition to Wattle Heath’s vertical integrated supply chain which extends from securing supply of Australian certified organic fresh milk through to a dedicated organic spray drying facility, and the proposed majority owned blending and packing plant all the way to the end consumer.”

“We launched Uganic in September 2019 with a powerful proposition for the discerning consumer, offering them a certified organic, traceable and highly nutritious range of dairy products. The early reception from consumers at trade shows and from direct sales has been extremely positive and with Chemist Warehouse we will have Uganic prominently positioned in one of Australia’s biggest sellers of infant formula.”

A deal with a cost.

It is worth noting that this deal comes at a cost. Wattle Health is essentially paying Chemist Warehouse in shares for the supply agreement.

It will issue the retailer 3 million ordinary shares on the signing of the long-term supply agreement.

Wattle Health will then issue a further 5 million shares when Chemist Warehouse provides equivalent value in marketing support and the ranging of the Uganic infant formula range across its retail network.

A further ~10.9 million shares will be issued after it provides equivalent value in marketing support and the ranging of its proposed A2 Milk Company Ltd (ASX: A2M) rival a2-only infant formula range. Another ~1.1 million shares will be issued for professional services.

In addition to this, over the first five years of this arrangement, Wattle Health has committed to spend ~ $1.2 million annually in marketing support to build brand awareness, sales and brand loyalty.

However, all this remains subject to shareholder approval and the company completing its proposed acquisition of Blend and Pack. This acquisition rests on the company raising a minimum of $62 million via a rights issue by December 31.

It is also worth noting that Chemist Warehouse has a very similar deal in place with Bubs Australia Ltd (ASX: BUB). So there is no exclusivity here and it will continue to compete with its larger rivals.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of A2 Milk. 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 Scott Phillips.

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