Comvita emerged on SeaDragon's register with a 13.06 percent stake after agreeing to facilitate the completion of the company's 3-for-5 renounceable rights offer last September.
SeaDragon [NZX: SEA] shareholders have overwhelmingly voted in favour of funding arrangements with Comvita [NZX: CVT] that will result in the manuka honey company becoming the biggest investor in the fish oil refiner with as much as 36.5 percent of the company.
Comvita emerged on SeaDragon's register with a 13.06 percent stake after agreeing to facilitate the completion of the company's 3-for-5 renounceable rights offer last September. As a result, it was issued with 411 million SeaDragon shares and 411 million options. Then in May this year, Comvita provided SeaDragon with a convertible loan facility of $3 million, which could be converted to a maximum 375 million ordinary shares.
The arrangements needed approval of shareholders at today's meeting in Tauranga because they will push Comvita's holding to more than the 20 percent threshold for a full offer under the Takeovers Code and in the event Comvita converts all options and the loan to shares and no other shareholders exercise their options could see its holding jump to 36.5 percent. That also exceeds the 25 percent threshold that would allow Comvita to block a special resolution of shareholders.
An independent evaluation by consultancy Campbell MacPherson concluded Comvita is unlikely to end up with 36 percent but was likely to end up with a shareholding above the 25 percent threshold. The arrangements give Seadragon access to up to $3 million at a time when it is cash strapped and not well placed to increase its borrowing from its main lender Heartland Bank, the evaluation said.
The analysis found the conversion price of 0.8 of a cent was a "significant" discount to its trading price (now 1.2 cents), the terms were not fair to non-associated shareholders. Still, taking into account the wider benefits and risks, the positive aspects of the transaction outweighed the negatives.
Chairman Colin Groves told shareholders today that the company accepts that the terms of the transaction "are favourable to Comvita" but given the urgency of the funding need and Seadragon's stage of development it was unlikely the company would have found alternative funding.
"We believe we have arrived at an agreement that represents the best that we could hope for," Groves said. The company's other cornerstone shareholders, One Funds Management with 23 percent and SDMO Trustee with 13.8 percent both supported the transaction.
Seadragon ended up being squeezed for cash because demand for Omega-2 plunged just as it was investing in a new refinery for Omega-3, a product with greater global potential. It ended up writing down its Omega-2 inventory by $3.7 million and the Comvita funding is partly being used to exit that market.
The company said it plans to launch a further rights issue soon, "to ensure we have the right capital structure". It will also need the capital to fund further planned investments in its Omega-3 refinery, to allow production of higher-value oil through fractionation, which is likely to cost more than its $3 million estimate.
(BusinessDesk)
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