Listed Mad Butcher seeks growth

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With 36 stores and turnover of more than $150 million a year, it is already the biggest independent butcher chain in New Zealand.

“I’ve been able to get it this far but we need to take it to the next stage to grow,’’ Morton said.

Being part of a listed company would raise the public profile and widen the funding base, he said.

This is in addition to the high profile developed already by the original “mad butcher’’ Sir Peter Leitch, who sold the business to Morton in 2007 but remains involved as brand ambassador.

The acquisition by Veritas is expected to be completed in March, Veritas chairman Mark Darrow said.

Morton is targeting about six more stores within a year to 15 months of listing and plans to keep it going from there.

Darrow believes the franchise butcher chain is under-represented through much of NZ except for Auckland, where it has 17 stores. He described Wellington and Christchurch coverage as reasonable.

There are five stores in Christchurch, with Morton targeting nearby towns Rangiora and Rolleston for openings, as well as a second store in Dunedin.

Veritas directors would be planning an aggressive growth strategy, including greater same-store sales through an expanded non-meat product range, Darrow said.

Morton is selling the business for $40 million, half in cash and half in shares. The share-based portion will make him the biggest shareholder in Veritas, with a stake above 40%. He will become a director of Veritas and remain as chief executive of Mad Butcher.

The Mad Butcher chain is the old-style butcher operation, with sheep, beef, pork and chicken arriving in store in carcase form and being cut fresh into retail products every day.

AFFCO Holdings is the main supplier of sheep and beef, while Tegal supplies the chicken and pork comes from Porkcorp NZ, a Christchurch-based company in which Alliance Group has a 50% stake.

Darrow was chief executive of PGG Wrightson Finance before its sale to Heartland Bank and still works as a management consultant in the PGW group. Veritas is one of his outside interests and has been a listed shell-company for the past year, with the directors investigating a number of potential acquisitions.

None were progressed until Mad Butcher emerged. Darrow said the group had spent six months doing due diligence on the business and negotiating a deal with Morton.

“Mad Butcher was a stand-out business from the start. It’s been able to develop a simple business model.’’

The planned investment has been well received, with Veritas shares selling at about 10c on the NZX, from a 4c to 5c level for much of last year.

It has about 400 shareholders, but Darrow hopes to at least double this, including institutional investors, through a capital raising planned to complete the funding of the deal. Initial funding is already in place, through bank debt and an underwriting agreement with Craigs Investment Partners.

Mad Butcher is the focus for the Veritas board but it will eventually seek other investments, Darrow said.

Having the Mad Butcher business on the NZX will help lift the profile of the agriculture sector. Until the Fonterra TAF units were listed late last year the trend had been a reducing sharemarket exposure.

AFFCO left the market three years ago and the Veritas/Mad Butcher arrival will coincide with the likely departure of New Zealand Wool Services International from the NZAX board.

The delisting of New Zealand Farm Systems Uruguay has been compensated by the expansion of another dairy company, A2 Corporation, and its transfer to the NZSX from the smaller NZAX.

PGG Wrightson’s improved trading record is also bringing investors back to the sector.

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5:30 AM Friday Mar 22, 2013 ✩Save

The Mad Butcher logo The Mad Butcher sign picture supplied
BUTCHER'S DETAILS

A prospectus for the Mad Butcher's back door listing is expected to be out next week.

Veritas Investments' $40 million acquisition is being funded by $20 million in cash and $20 million in shares.

Its initial public offer was expected to go ahead in early March but complications over the back-door nature of it and the need to get approval from three regulators has slowed the process.

The capital raising is expected to be in the range of $22 million to $25 million with the price set by a book build ahead of the prospectus being made available.

In its interim report Veritas said it had firm commitments of $1.2 million for the capital raising with Craigs Investment Partners underwriting a further $12.7 million.

Of that $12.7 million Collins Asset Management has committed to sub-underwrite $2.5 million and RMI Holdings will pick up a further $2 million leaving just $8.2 million to be sold elsewhere.

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Veritas Investments expects to register a prospectus this week to raise up to $25 million to part fund its acquisition of the Mad Butcher.

Veritas, which is already listed on the stock exchange, announced in December it would buy the butchery business in a deal worth $40 million.

Chairman Mark Darrow said in a statement to the exchange that the shares would be offered at $1.30 each - a 14.8 per cent premium to the volume weighted average price for the three months prior to the acquisition being announced.

The price is 29 per cent below the price Veritas stock last traded at, of $1.82.

Retail investors will only be able to buy the shares prior to the listing if they are clients of an NZX broking firm and are New Zealand residents.

A priority pool of up to $3 million will also be reserved for New Zealand resident shareholders of Veritas who were on the share register as of February 22 and to existing Mad Butcher franchisees.


Darrow said Veritas has begun a book build process with institutional investors and NZX broking firms to allow indications of how many shares they would like to purchase.

Broking firm Craigs Investment Partners is underwriting $12.7 million of the share sale and has gained sub-underwriting agreements with Collins Asset Management, a company associated with director Tim Cook, for $2.5 million, and from RMI Holdings, associated with director Phil Newland, for $2 million.

The company has already received firm commitments for $10.2 million of shares, it said earlier this month.

The offer will open during April and remain open until early May. Veritas may also decide to close it early.

Darrow said the offer was subject to Veritas shareholder approval and a meeting would be held in late April to seek approval.

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8:33am, 26 Mar 2013 | ASSET
Mad Butcher Acquisition and Offer update

Veritas advises that it is finalising its offer documentation in connection with an offer of up to a maximum of $25 million of shares (the "Offer") to part fund the acquisition of the Mad Butcher franchisor business (the "Acquisition"), and expects to register a prospectus in respect of the Offer later this week. The Offer will comprise:

(a) a retail offer, consisting of:
(i) a broker firm offer, which will be available to New Zealand resident clients of NZX Firms who have received an allocation from that NZX Firm; and
(ii) a priority pool of up to $3 million of shares, which will be available to New Zealand resident Veritas shareholders who were on Veritas' share register as at 5.00pm on 22 February 2013 and to existing Mad Butcher franchisees; and
(b) an institutional offer, which will consist of an invitation to bid for shares made to selected institutional investors in New Zealand.

Shares will be offered at an Offer price of $1.30 per share. This price represents a 14.8% premium to the volume weighted average price for the three month period prior to the announcement of the Acquisition on 20 December 2012. Veritas has commenced a bookbuild process, under which selected institutional investors and NZX Firms have been invited to lodge bids indicating the number of shares they wish to apply for under the institutional offer and the broker firm offer. The bookbuild is being undertaken by Craigs Investment Partners Limited as lead manager to the Offer. Full details regarding the Offer will be released following completion of the bookbuild and registration of the prospectus later this week. The Offer will open during April and may remain open until early May or such earlier date that Veritas may determine.

The Offer and the Acquisition are subject to Veritas shareholder approval, which will be sought at a special meeting of shareholders to be held in late April. Further details will be contained in the notice of meeting to be despatched to shareholders in early April.

For further information contact:
Mark Darrow
Chairman
Veritas Investments Limited
Phone: 021 88 88 58