Aryzta shareholders urged to vote against €800m capital raise plan

Investor advisory firm suggests plan is being fast-tracked without adequate consultation

Aryzta shareholders have been advised to vote down the company's planned €800 million rights issue, which management says is needed to pay down debt and fund a major restructuring of the group.

Investor advisory firm Institutional Shareholder Services (ISS) said it was unclear to what extent the baked goods specialist had sought shareholder input on the plan or if alternatives had been considered.

But Aryzta said said the €800 million plan was necessary to cut debt levels. In a statement to the stock exchange, the company said it had explored all the options.

ISS also claimed the company was trying fast-track the proposals by accelerating the date of its annual general meeting (agm) by more than a month.


While not coming out against the plan, ISS suggested the company should put its plan to a vote at an extraordinary general meeting (egm) being called for separately by Aryzta's largest shareholder Cobas Asset Management.

Negative surprises

Cobas, which controls 14.5 per cent of Aryzta, favours a less dilutive €400 million capital raise and is requesting an egm to put its alternative proposals to other shareholders.

Aryzta has claimed the Cobas proposal is “inadequate” and presents significant execution risk for shareholders.

“Aryzta has provided an endless string of negative surprises to investors, which, coupled with high leverage, contributed to an almost 90 per cent decline in its stock over the last four years,” ISS said in a report ahead of Aryzta’s planned agm on November 1st.

“The company’s margins have collapsed, while its peer group’s have remained largely stable,” it said.

On the company’s €800 million share sale plan, which is an amount equal to Aryzta’s current market capitalisation, ISS said one would expect consultation with the company’s largest shareholders. It noted Cobas’s claim that there was no prior consultation.

“ We also note that there is major overlap between Aryzta’s lending banks and underwriters, which would suggest the capital raising was negotiated with lending banks more than with shareholders,” it said.

ISS also said the company had advanced the agm by more than a month compared with previous years, leaving shareholders with little time to file alternative fundraising proposals.

“These two issues seem to indicate the company’s main concern was closing the capital raising without any undue interruption,” it said.

By raising €800 million, ISS said the company would bring its debt in line with peer companies but the impact on shareholders in terms of dilution would be “enormous”.

Shares outstanding

However, it said that a return to 12-14 per cent earnings margins, as expected by management in the medium term, could double or treble the equity market value of the company, “the open question being how many shares outstanding there will be at that point”, it said.

“Under such circumstances, given that Cobas has called another egm for the near future and that the company could put its proposal to a vote again at that egm, support for the company’s proposal is not warranted at this time,” ISS said.

Aryzta, which makes frozen par-baked bakery products for customers, including restaurant group McDonald's as well as the Cuisine de France consumer range, is looking to sell shares to reduce its debt, which ballooned as a result of an acquisition spree under former chief executive Owen Killian.

The fundraise would dilute Aryzta's earnings per share by about 25 per cent, according to Zuercher Kantonalbank analyst Patrik Schwendimann.

Eoin Burke-Kennedy

Eoin Burke-Kennedy

Eoin Burke-Kennedy is Economics Correspondent of The Irish Times