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Mad Butcher sale fair to Veritas shareholders, avoids 'more dire' consquences, adviser says

Wednesday 28th February 2018

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Veritas Investment's proposed sale of the Mad Butcher franchisor to chief executive Michael Morton for $8 million is fair to non-associated shareholders, avoiding "more dire" consequences if it doesn't go ahead, says the independent adviser on the transaction. 

The company's shareholders will vote on the transaction at a special meeting in Auckland on March 16, and the food and beverage investor's independent directors unanimously recommended the deal, the notice of meeting said. Independent adviser Simmons Corporate Finance says the $8 million price tag falls within its estimated value of between $7.2 million and $9.4 million and that the transaction is fair to shareholders not associated with Morton and if it doesn't proceed could see lender ANZ Bank New Zealand appoint receivers to the company. 

"The consequences of the Mad Butcher transaction not proceeding may be more dire for the non-associated shareholders than if the transaction did proceed," the report said. "Under either a receivership or liquidation scenario, we estimate that there would be no financial return to the company’s shareholders." 

Veritas has been selling assets to repay debt it took on to buy a series of businesses since embarking on a strategy of building a food and beverage business with the backdoor listing of the Mad Butcher business five years ago. The company paid $40 million for Mad Butcher, half in cash and the rest in scrip, raising $25 million to help fund the deal. 

If approved, the proceeds will go to repaying $27 million owed to ANZ and leave the Better Bar Co as Veritas's remaining asset. 

"The company’s strategic focus may change to solely operating hospitality businesses (rather than being a wider investment company) and it may seek to pursue mergers and acquisitions in the sector," the report said. "In addition, Veritas would be a more attractive acquisition target as it would hold a single sector investment compared with its current portfolio of a hospitality business and a meat franchisor business which have limited synergies between them."

Veritas reported its first-half result yesterday, which showed Better Bar Co's earnings before interest, tax, depreciation and amortisation rose 1.9 percent to $3.1 million in the six months ended Dec. 31. on an equivalent increase in revenue to $12.2 million.

The adviser's report notes Morton will get to buy back the business for less than what he sold it for, although it's "contracted significantly" since then. 

Chair Tim Cook said the board is still in active discussions with "a number of parties" on a potential sale or merger of the Better Bar Co business, or finding alternative finance arrangements. Keeping ANZ's extension of credit "will be helpful in securing the best possible outcome," he said. 

The shares were unchanged at 5 cents, valuing the company at $2.2 million.


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