Freedom Food’s plan to tame US almond growers

Carrie LaFrenz and Jemima Whyte

Mar 24, 2021 – 4.37pm

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Freedom Foods’ convertible debt lifeline has been arranged to avoid any settlement from a $26 million legal dispute with key supplier Blue Diamond Growers over the group’s rights to continue selling its growth brand, MilkLAB.

The action taken by the US almond growers - now in arbitration - is just the biggest issue confronting the fallen market darling under new chairman Genevieve Gregor and chief executive Michael Perich. The company is also helping the corporate regulator with its inquiries while also running its recapitalisation.

Non-dairy milk drinks have grown in popularity and are now at the centre of US arbitration proceedings between Freedom Foods and Blue Diamond Growers. TRIBUNE

“It [the convertible note] gives the company leverage to say if you ask for too much you may precipitate the wrong outcome ... it sends a clear message this company is in a turnaround and it doesn’t have the financial wherewithal to manage the financial claims,” Ms Gregor told The Australian Financial Review.

Under the terms of the convertible note - which Ms Gregor said were standard and “very much the same” as those negotiated with distressed debt fund Oaktree Capital - note holders need to approve any settlement with Blue Diamond.

Under the new capital structure, the note holders have greater security over the company assets than any other creditor in the event of a default. That would allow the major backers, the Perich family, to have first run at the failed company’s assets in the event of a default.

Ms Gregor said any debt instrument always has material litigation clauses that trigger a default, and Freedom Foods’ structure is no different.

The full $265 million capital raising is not underwritten. The billionaire Perich clan through its investment vehicle Arrovest has pledged to subscribe for $200 million of the notes. The balance of $65 million is being raised on a best-efforts basis, but is not essential for the UHT milk and plant-based drinks manufacturer to reduce get its transformation under way.

Asked if the Perich’s large holding in the note and 53.5 per cent equity stake created challenges for the independent directors, Ms Gregor said the best outcome would be the Perich family holding an equal stake in both the equity and notes.

“If you could create same structure upstairs as downstairs that would be a really good outcome for company,” she said.

After a nine month hiatus, trading in freedom Freedom Foods shares resumed on Monday with an 82 per cent crash to 24¢, before recovering to close at 53¢. They had last traded at $3.01 on June 24. The value of the Perich stake fell to just $75 million from $428 million.

Ms Gregor defended the company’s move to release details of the convertible note raising on Friday night, saying the ASX had required trading to begin as soon as the information was released, so the company opted to release it after market close to give investors the weekend to read it.

Ms Gregor only joined the board as an independent director in March 2020, and a few months later was thrust into crisis which she called “intense” and unexpected.

“When a company hits some trouble – it’s very intensive to fix it up. This has come at a personal cost to my family. I have not been around, and I have children, and a supportive husband,” said Ms Gregor, who took up the role as non-executive chairman in late January.

Her day job as partner at private equity firm Colinton Capital also suffered, but Ms Gregor said her colleagues, including founder Simon Moore, were understanding and knew what was required.