Suitors lining up for troubled Huon Aquaculture, including JBS

Tasmania, Australia-based Huon Aquaculture is entertaining offers from a number of suitors interesting in acquiring the struggling salmon-farming firm.

Huon is the largest family-owned and -operated vertically integrated salmon producer in Australia, with a projected harvest of 35,000 metric tons (MT) in fiscal year 2021. It operates hatcheries, marine farming of salmon and trout, harvesting and processing operations, and sales and marketing vehicles. It projects operating earnings for 2021 of between AUD 15 million and AUD 20 million (USD 11.1 million and USD 14.8 million, EUR 9.3 million and EUR 12.4 million).

However, the company was hit hard by the COVID-19 pandemic, reporting a statutory loss of AUD 95.3 million (USD 73.6 million, EUR 61.1 million) for the six months ending 31 December, 2020. It has AUD 120 million in debt on its books, giving it a gearing ratio of 43 percent, according to Sam Baker, an adviser at Hobart, Tasmania, Australia-based Shadforth Financial.

In an interview with ABC News, Baker said even with a recent fundraising round that brought in AUD 60 million (USD 44.3 million, EUR 37.3 million), heavy debtload is the biggest reason Huon is pursuing a sale.

“This is one of the significant reasons they’re probably going through this process at the moment,” Baker said.

Baker said São Paulo, Brazil-based JBS, the world’s largest meat-processing company, with operations throughout Latin America, had expressed interest in buying Huon; and that Nelson, New Zealand-based Sealord is also a potential suitor. Existing shareholders and private-equity interests could also be exploring a possible acquisition, he said.

JBS is one of several global food players “looking to increase their footprint in the aquaculture industry,” Baker said, and acquiring Huon would give Sealord “a potential international look.”

A representative of JBS’ commercial seafood operations confirmed with SeafoodSource the company’s desire to expand operations in the salmon business, but did not comment on its interest in Huon. The Australian has also reported on JBS’ interest in Huon, and The Mercury reported private equity firm Pacific Equity Partners and West Australian mining magnate Andrew “Twiggy” Forrest are also among the parties interested in Huon. Forrest purchased 7.3 percent of the company in June for around AUD 20 million (USD 14.8 million, EUR 12.4 million) through his holding group Tattarang Agrifood.

Tattarang Chief Investment Officer John Hartman said in a statement at the time Huon Aquaculture was "recognized internationally for producing and showcasing some of Australia’s best aquaculture products with the rest of the world.”

Huon currently has a market value around AUD 300 million (USD 221.5 million, EUR 186.3 million) and its share price was trading at AUD 2.78 (USD 2.05, EUR 1.73) on Friday, 29 July. In a market update provided to the Australian Stock Exchange on 24 June, the company announced an extension of its strategic review, first announced in March, as it “continues to assess potential corporate-level transactions.”

“The company is currently facilitating due diligence by select interested parties (with customary confidentiality obligations in place) in order to explore whether a transaction could be consummated for the benefit of shareholders,” it said. “The board notes that there is no certainty around whether the current engagement with interested parties will result in a binding transaction, the form, or terms of any transaction, or whether there will be a decision or recommendation by the board of Huon to pursue any transaction.”

According to the Australian Financial Review, the strategic review was extended for a week in order to give JBS and other potential bidders more time to road-test Huon’s salmon fillets. The AFR said concerns have also been raised regarding Huon’s lease payments, which are not included in its operating earnings guidance. Those payments could flip Huon’s guidance to a loss of as much as AUD 10 million (USD 7.4 million, EUR 6.2 million) this fiscal year, it reported.

The extension of Huon’s auction process could mean bids received thus far remain below the company’s expectations. Huon, which remains majority-owned by Peter and Frances Bender, who co-founded the company in 1986, has not specified a price at which it is granting due diligence, according to the Financial Review, which reported a discounted equity recap is the most likely outcome of the strategic review process.

“A take-private looks like the best option for Huon shareholders. But interested parties are also wary of the recent performance and required capital spend, and say they’re between a rock and a hard place,” the business journal reported. “Prolonged auctions usually mean one of two things; business circumstances have changed, or buyer interest is below vendor price expectations and bidders are asked to sharpen their pencils. Whichever the case at Huon, more time only takes the bid date closer to the group’s full-year results in August.”

Baker, of Shadforth Financial, said any transaction involving Huon would likely result in the departure of the Benders from leadership posts with the company.

“Very likely they would step away – it would be a full takeover of the company,” he said.

Potential suitors face the additional obstacle of growing opposition from environmental groups opposed to commercial-scale aquaculture in Tasmania. Tasmanian Alliance for Marine Protection Co-Chair Peter George called for a wholescale shift from ocean-based aquaculture to land-based operations.

“Huon Aquaculture and other salmon producers have already lost community trust in Tasmania and the window for making profits at the expense of the state’s waterways and marine life is closing,” he told The Mercury. “Polls reveal a majority of Tasmanians concerned about declining water quality as a result of industrial salmon production – and that concern is reaching the Australian mainland, where half of respondents support a moratorium on expansion.”

Contacted on 29 July by SeafoodSource, company spokesperson Giles Rafferty declined to comment on whether Huon will be sold.

“The strategic review is still ongoing and until it is completed there is nothing more to say beyond the most recent release to the Australian Stock Exchange,” he said. “As soon as there is new information, it will be release to the ASX.”

Photo courtesy of Huon Aquaculture