'A dud deal': Why is the Humm share price falling on Thursday?

A Humm director and major shareholder is continuing to fight against the planned sale of its BNPL segment.

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Key points

  • The Humm share price is down almost 4% on Thursday amid calls from the company's director and major shareholder for its board to outline the value of the proposed sale of its BNPL segment
  • Andrew Abercrombie labelled the proposed transaction a "dud deal" yesterday afternoon, noting a major portion of the sale's value has fallen 25% since it was tabled
  • Humm chair Christine Christian, however, told the market the segment's profitability has tumbled in 2022 and its struggles will likely continue if it's not sold

The Humm Group Ltd (ASX: HUM) share price is sliding on Thursday. It comes as the battle to sell the company's consumer finance leg – housing its buy now, pay later (BNPL) business – heats up.

The company's director and largest shareholder Andrew Abercrombie – who opposes the sale of the company's consumer finance segment – has labelled the transaction "nothing but a garage sale". He urged the company's board to inform shareholders of the sale's falling value yesterday afternoon.

However, Humm chair Christine Christian noted the segment has been underperforming in 2022 and will continue to struggle if not sold.  

At the time of writing, the Humm share price is 65 cents, 3.7% lower than it was at its previous close. However. it was up by almost 4% at 70 cents in early trade before retreating.

Let's take a closer look at the clash emerging over the future of Humm's BNPL business.

Directors disagree on proposed BNPL sale

The Humm share price is sinking on Thursday as Abercrombie continues his campaign against the sale of the company's consumer finance business despite its tumbling earnings.

In a trading update released to the market this morning, the finance provider outlined the extent of the segment's suffering.

Its cash net profit after tax plummeted 61% over the fiscal year to date to May. Meanwhile, its net receivables slipped 3.6% between 31 December and 31 May.

 "The trading environment is very tough for [Humm consumer finance], with intense competition, rising interest rates, and weakening consumer sentiment," Christian told the market.

"Without enhanced scale, which the [Latitude Group Holdings Ltd (ASX: LFS)] transaction will deliver, the outlook for [the segment] will be even more challenging."

The company has previously flagged not selling the business could pose a "significant risk" for the Humm share price.

Latitude has offered Humm shareholders $35 million cash and 150 million Latitude shares in exchange for the business. When the offer was initially tabled, the scrip portion of the sale was valued at $300 million.

However, the Latitude share price has since fallen 25%. As of its previous close, the offer is, therefore, valued at around $225 million.

Yesterday Abercrombie reconfirmed his belief that the proposed transaction was "a dud deal from the very beginning".

He continued: "[It] undervalu[es] what I believe is a great business which the very same board confirmed was profitable just seven months ago."

Abercrombie is calling for the company to outline the current value of the transaction. He says doing so will allow shareholders to place an informed vote when they go to the ballots on the sale next week.

"When I speak to shareholders, some of them continue to believe that the consideration payable by Latitude is worth $335 million," he said.

"I think it is only fair for the chair to inform all shareholders of this huge drop in value."

Humm share price snapshot

The Humm share price is currently 27% lower than it was at the start of 2022. It has also slipped 36% since this time last year and is down 5% over the past month.

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 no position in any of the stocks mentioned. 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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