The following email has been sent to the company. A copy of any reply will be posted.
For the attention of Mr Varano and the Board of Directors
The trustee of our super fund, ..., holds ... shares in OBJ and the comments and questions made below are representative of the views of a significant number of shareholders.
It would be fair to say that there is a good deal of concern among existing shareholders concerning the purchase of Export Corporation and its Nutrition Systems business coming, as it does, soon after Mr Peros’ appointment and the setting up of a base for Wellfully in Switzerland.
We shareholders support Mr Peros’ efforts to repeat what he did atForeo, namely, to use the internet and Wellfully to market products made by the company using its technology.
To us it makes sense that the sale of products through internet marketing is a better approach than trying to build sales through retail outlets. We also accept that it made good sense to start our internet marketing by targeting European, North American and East Asian markets first.
But that vision is so different to running a business selling body building supplements through retail stores in Australia and NZ that the two cannot be reconciled.
We are also sceptical about other aspects of the deal with Export Corporation:
1. OBJ is a global leader in magnetically enhanced transdermal molecular delivery technology. Its products are sold through P&G and it has a market cap of $27 million.
By contrast Nutrition Systems sells body building products made by others through retail outlets in Australia and New Zealand.
There is no synergy. The distribution of products within Australia and NZ by NS is likely to be of little use to the Wellfully effort in the northern hemisphere.
2. The NS business is a mature business with low margins and no barriers to entry.Its sales may be declining. (The sales figures are lower in the latest period than they were for the previous corresponding period.) Questions have been raised about its accounts, the nature of its inventories, its loans, its prospects and the risks associated with it being an importer of products. It is a company run by Mr Pavlovich. If he left or died, there is a substantial key person risk attached to the business.
3. In return for a payment of $85 million OBJ will get a $12 million dollar warehouse in Sydney, stock and about $50 million worth of intangibles. This seems to be an excessive sum to pay for a sales agency which distributes imported products. How long has the business been on the market? How was it valued? Is the business in any way associated with persons associated with OBJ? What factors led to it being identified as being suitable for OBJ to acquire? Why do we need to own a warehouse in Sydney?
4. On the information given to us, it seems that once the business is acquired the ongoing commitments to pay for it will largely dictate whether funds are available to support Wellfully. If the NS sales figures are static or decline the deal may not give any advantage to OBJ anyway.
5. We do not know whether OBJ’s directors will participate in any substantial way in the intended capital raising.
Assuming that the deal goes ahead with Mr Pavlovich, OBJ will have to raise $85 million. A good many shareholders support an alternative approach.
Instead of paying $85 million to buy a business with no synergies to OBJ, why not raise about $25 million, or whatever is needed to fund Mr Peros' work, from existing and new shareholders.
If we did that there are a number of plusses
- We would fund the Swiss operation
- We would not be spending $85 million
- We would not be taking on any debt
- There would be less dilution
- We would not be paying million dollar success fees
- We would not be distracted by running an Australian distribution business, and
- We would not be giving Mr Pavlovich control of OBJ.
Please ask the directors to consider these matters.
Regards
(20min delay)