humm group director and 20 per cent shareholder Andrew Abercrombie has stepped up his efforts to stop the sale of the company’s consumer finance business to Latitude Financial Services, launching a campaign that will include a shareholder mailout, a website and telephone contact from a proxy service.
Abercrombie has hired proxy solicitation firm Alliance Advisors Australia to run the campaign. It has set up a website, www.voteagainstthehcfsale.com.au, and drafted a letter outlining Abercrombie’s opposition to the deal.
Humm shareholders will meet on June 23 to vote on a proposal to sell the consumer finance business to Latitude for A$335 million. Consideration will be in the form of 150 million Latitude shares and $35 million cash. The humm board said it plans to distribute the entire proceeds to shareholders.
The board issued an explanatory booklet on May 18. The majority directors’ view is that humm shareholders could benefit from the increased scale of the combined humm consumer business and Latitude through receiving Latitude shares.
It pointed to the independent expert’s assessment that the offer price is fair and reasonable, given a $260 million to $309 million valuation of the humm consumer business on a controlling interest basis.
The booklet also outlined Abercrombie’s view that the terms of the sale undervalue the consumer finance business and that a better approach would be for humm to remain in its present form, to execute on its growth plans and to do some acquisition of its own.
Earlier this week, the majority directors followed up with a statement that the consumer business has not made a profit this year.
They said preliminary financial results indicate that humm consumer finance has not been profitable in the four months to April 2020 and there is a risk of humm’s share price falling if the sale does not proceed.
The directors said the results for the four months to April were “materially lower” than for the comparable period last year, after adjusting for the “reversal of the non-cash macro overlay provision”
“The buy now pay later sector, which has been the focus of humm consumer finance’s growth plans in recent years, is intensely competitive, with margins declining across the industry,” the statement said.
“The majority directors believe the negative effects of this competitive environment on profitability are likely to be amplified by increasingly challenging economic conditions.”
Abercrombie issued a response, saying: “The announcement from humm attempts to paint a negative picture of humm’s consumer business to drive support for a deal with Latitude.
“The underlying performance of the business is solid. The non-cash macro overlay provision referred to in the statement is an attempt to lower the profit numbers to serve the board’s purpose – to get shareholders to support an opportunistic deal.”
Abercrombie told Banking Day that it is too early to say how much support he has but shareholders he has spoken to agree that the offer undervalues the business.
He said a common theme in the discussions is that shareholders do not want Latitude shares as consideration for the sale. Latitude’s share price has declined steadily from its listing price of $2.60 in April last year to the current level around $1.80.
Abercrombie is critical of the majority directors for the way they have handled shareholder communications.
When the deal was announced in January, chair Christine Christian said the board’s view was that “the Latitude proposal is potentially attractive to HUM shareholders”.
Abercrombie said: “The market assumed I was on board with the deal. That should have been clarified.”
He said the majority directors statement this week about the consumer business losing money was highly selective. The directors based their opinion on an adjustment for the change in expected credit loss provisions but made no adjustment for a range of extraordinary expenses, including the cost of setting up a business in the UK and costs involved in the Latitude transaction.
He is also critical of the voting process, which requires a 50 per cent yes vote to approve the sale.
Abercrombie said if the transaction was structured as a scheme of arrangement it would require 75 per cent shareholder approval but voting has been set up to get around the typical scheme resolution mechanism.
A vote on a resolution to facilitate the transfer of consideration shares to humm shareholders - the scheme - will only be taken after a vote is taken to approve the sale, which requires a 50 per cent vote in favour.
“They have found an arcane listing rule. It is unethical and shows a lack of consideration for shareholders,” Abercrombie said.