Tru-Test major shareholder ups stake in $10m share buyback deal

Agri-tech company Tru-Test Corporation has completed a $10 million share-buyback while the stake of major shareholder KTT has been boosted from 21.7 percent to 39.6 percent. KTT is a limited partnership owned by Australian private equity firm Kestrel Capital.

Under the share deal approved at the private company's recent annual meeting, Tru-Test acquired 9.5 million of its shares - 23.6 percent of its capital, at $1.05 per share. That's the same price paid in February to competitor Gallagher Group which sold down its entire 19.9 percent stake after two failed attempts to gain regulatory approval for a takeover bid.

The board's rationale for the latest share buy-back was to provide its 155 shareholders with a chance to shed some shares in the largely illiquid stock. The company cancelled shares acquired in the buyback, which was funded by the sale of 5.7 million new shares to KTT and a $4 million Bank of New Zealand loan.

An independent adviser's report on the deal by Simmons Corporate Finance said the positive aspects outweighed the negative. KTT's voting rights increased under the Gallagher buyback but it was granted a Takeovers Panel waiver from having to sell these until other shareholders voted at the annual meeting to allow it to retain them. Simmons Finance said the buyback was unlikely to reduce Tru-Test's attraction as a takeover target and forcing KTT to sell its additional voting rights could have put downward pressure on the share price.

Tru-Test is the world leader in milk metering with more than 90 percent global market share, holds over half the global market for electronic animal weighing, is a dominant player in electric fencing, and is a major contract manufacturer. Its latest financial results for the year ending March 31 show revenue significantly boosted by strong sales in the US and Latin American markets and also by last year's $74.5 million acquisition of Dairy Technology Services which manufactures farm holding tanks for the local dairy industry. Revenue from continuing operations was boosted by a third to $130 million and earnings before interest, tax, depreciation and amortisation (Ebitda) rose 177 percent on the previous year to $14.8 million. Net profit for the year was $2.1 million.

Board chairman John Loughlin said there had been a step-change in the company's underlying revenue and projected earnings as a result of last year's DTS and Radian purchases and it was pleasing they had performed in line with the expectations formed during due diligence. He said earnings from DTS are New Zealand-based and that helped offset some of the currency hit Tru-Test took on its exports which impacted its margin.

He said the group was still looking for further acquisition opportunities in the agri-tech space both in New Zealand and overseas. Tru-Test's debt ratio after the DTS purchase sits at 76 percent and Loughlin said the business had strong cash flows to support that level but he "wouldn't want it to reach much higher than that". Any acquisition would need to be at least partly funded by equity, he said.

Tru-Test spent $1.6 million during the year on a long term incentive plan for senior executives. For the shares to be vested there had to be annual growth of 20 percent to the share price on April 1 2009 of 90 cents per share. An independent valuation last year valued them at $1.67 per share, 62 cents higher than what KTT paid for its latest share placement.

Loughlin said the difference between the recent share buyback price and that used in the incentive plan reflected a desire by some long-standing shareholders to exit. "We've made it clear what we think it is worth. At the end of the day we offered it to buyers and sellers at the same level."

There were 93 million shares issued under the incentive plan in 2014 and restrictions have also been lifted on previously vested shares which stopped the executives selling them, being paid dividends, and having voting rights. The participants will receive a bonus sufficient to pay off a loan created for the value of the shares.

Managing director Greg Muir was vested with 1.16 million shares during the year. Of those 48,941 shares were issued this financial year and $1.15 million restricted shares issued in previous years. Muir was paid $1.22 million for the year, including his remuneration under the long term incentive plan.

Muir was formerly chief executive at The Warehouse, executive chairman at Pumpkin Patch and chairman of Hanover Finance. Loughlin was formerly chairman of Allied Farmers which made a disastrous acquisition of Hanover's finance book from owners Mark Hotchin and Eric Watson in December 2009, leaving the lenders' debenture holders largely out of pocket.

(BusinessDesk)

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