Hmmm… Why is the Humm share price lagging its sector on Friday?

The BNPL stock could have a battle on its hands later this month.

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Key points

  • The Humm share price is trading lower on Friday following reports insider buying at the company could pose a threat to its plan to sell its BNPL business 
  • Humm director Andrew Abercrombie has upped his holding in the company, reportedly in an attempt to express his confidence in its BNPL leg 
  • He is urging shareholders to vote against the proposed sale of the business later this month 

The Humm Group Ltd (ASX: HUM) share price is in the red as the company's director and major shareholder reportedly ups his campaign against the sale of its consumer finance leg.

Andrew Abercrombie has increased his holding in the company's stock as he continues to argue against Humm's sale of its buy now, pay later (BNPL) business.

At the time of writing, the Humm share price is 73 cents, 4.58% lower than its previous close.

For context, the S&P/ASX 200 Index (ASX: XJO) has slipped 1.04% today, while the All Ordinaries Index (ASX: XAO) is down 1.16%. Meanwhile, the S&P/ASX 200 Financials Index (ASX: XFJ) – housing Humm's ASX 200 BNPL peers – is just down 0.76%.

Let's take a closer look at the latest challenges facing Humm's major transaction.

Sale of BNPL business divides directors

The Humm share price is cratering on Friday amid news Abercrombie has forked out another $5.1 million to increase his holding in the company.

That brought the director's holding in Humm to 22.5%, reports The Australian.

The purchase comes as Humm shareholders prepare to go to the ballot box over what was a $335 million offer to buy the company's consumer finance business – posed by Latitude Group Holdings Ltd (ASX: LFS) – later this month.

An independent expert and the majority of the company's directors believe the offer is in Humm's best interests. Abercrombie is a lone outlier.

He urges shareholders to vote against the plan, saying it undervalues the business and disallows Humm to execute its plan to grow it organically. He has vowed to vote his growing stake in the company against the move.

The sale is to go to a shareholder vote on 23 June. Late last month, the company updated the market on the business, divulging it hadn't turned a profit in the four months ended April and poses a "significant risk" to the company's share price if not sold.

"While [Humm Consumer Finance] is a high-quality business, the BNPL sector … is intensely competitive with margins declining across the industry," the company revealed. "[Humm Consumer Finance] is a small player relative to its competitors with limited financial resources, which impacts its competitive strength and ability to take advantage of sector consolidation opportunities."

"The commercial business, which will be retained by Humm shareholders, continues to enjoy strong and profitable growth."

The takeover bid encompasses 150 million Latitude shares and $35 million cash. Originally, the shares were worth $300 million.

However, as the Latitude share price has slipped from around $2 to $1.65 over the months since the offer was first posed, the acquisition's value has also dropped.  The parcel currently has a total value of around $247.5 million.

All the proceeds are earmarked to be distributed to Humm shareholders, with investors receiving around 0.303 Latitude shares and $0.07 cash for every Humm share they own.

Abercrombie bolsters voting rights

Abercrombie is growing his parcel of Humm shares in an effort to exhibit his confidence in the business, reports The Australian. The publication quoted the director as saying:

I believe this company has a bright future and should not be sold cheaply to Latitude …

Momentum is quickly building as more and more Humm shareholders realise what a dud deal this is.

It also reports that two other "significant" shareholders – one with an approximate 1.5% stake in the business – are planning to vote against the sale.

The transaction needs the support of more than 50% of shareholders to go ahead.

Humm share price snapshot

It's been a rough year for the Humm share price so far.

It has tumbled 20% year to date. Though, for shareholders in BNPL giant Zip Co Ltd (ASX: ZIP), that dip might appear tame.

The Humm share price is also 33% lower than it was this time last year.

Motley Fool contributor Brooke Cooper has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended ZIPCOLTD FPO. The Motley Fool Australia has recommended Humm Group Limited. 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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