Comvita to take 19.9% stake in SeaDragon in rights offer, securing fish oil supply

Comvita [NZX: CVT] will take a 19.9% stake in SeaDragon [NZX: SEA], helping provide funding for the fish oil refiner to complete a new manufacturing facility in Nelson, and giving the health products maker a secure supply of fish oil as it looks to expand its health supplement range.

Te Puke-based Comvita will participate in SeaDragon's three-for-five renounceable rights offer, ensuring the issue crosses its minimum threshold to raise $5 million, the companies said in a joint statement. Each right entitles an investor to one share and one option. Comvita will invest between $2 million and $3.2 million, depending on the uptake, and will be scaled to ensure it takes a 19.9% stake. Comvita will also be granted an option to buy 3 million shares at 0.8 of a cent each in full before Oct. 1, 2017, subject to shareholder approval.

Comvita chief executive Brett Hewlett told BusinessDesk the company has been looking to expand its exposure in fish oils, and SeaDragon is New Zealand's only producer of food-grade fish oil.

"We tend to work in ingredient platforms – this is the vertical that we tend to pursue," Hewlett said. Comvita's "quintessential brand" has been built on "managing our source of supply and delivering to consumers around the world a truly authentic story of origin and source and where that product came from."

SeaDragon wants to raise up to $9.1 million to complete its Omega-3 refinery and add a fractionation plant at the new site, upgrade its existing manufacturing facility, and provide it with enough working capital to keep operating. The rights issue is in addition to a $2.5 million convertible loan from cornerstone shareholder BioScience Managers, which isn't participating in the offer. A planned share consolidation following the offer has been delayed, and will be considered once the rights offer closes.

As part of the deal, Comvita will enter into a supply agreement with SeaDragon, giving it first right of refusal to all SeaDragon products.

Comvita's Hewlett said his company would initially take a portion of SeaDragon's fish oil, and build its line over time.

"Our focus is more on the specialty products, which are the New Zealand-sourced fish species that have an authentic supply story," he said.

Hewlett said SeaDragon has had a "bumpy path" with the escalation in cost of building its new refining facility but the recent management and board changes have had a "big impact on their thinking," which has led to "an alignment between what Comvita wants to do and what SeaDragon is capable of delivering."

Comvita will appoint a director to SeaDragon's board once the offer closes.

SeaDragon shares rose 20%, or two-tenths of a cent, to 1.2c, while Comvita stock gained 1.6% to $6.30.

(BusinessDesk)