Targeted company's performance has taken a hit recently
Non-bank lender Latitude Financial is reportedly considering walking away from a deal to acquire a buy-now-pay-later (BPNL) business due to its deteriorating performance.
Latitude Financial announced in February that it had agreed to buy Humm Consumer Finance for $35 million in cash and 150 million Latitude shares, The Australian reported. That valued the deal at $335 million as of Dec. 31, when Latitude shares were $2.
Currently, however, the deal is valued at about $245 million, with Latitude’s share price closing at $1.40 on Thursday.
The deal would bring Humm’s credit card and BPNL operations under the ownership of the Melbourne-based non-bank, according to a report by Business News Australia. However, the unit has gone from making around $50 million per year to losing money amid a major tumble across the BPNL space, The Australian reported.
Andrew Abercrombie, founder and former chairman of Humm, has been attempting to block the sale. Abercrombie has increased his shareholding to 22.5% and urged investors not to approve the deal in a vote on June 23. For the deal to go through, Humm needs approval of more than 50% of shareholder votes cast.
The combined business would be the largest of its kind in Australia, with five million customers, about 82,000 merchants and $8.4 billion in gross receivables, The Australian reported.
However, with Humm’s revelation on Thursday of the group’s less-than-stellar performance, some are suggesting that Latitude may seek approval from the board to back out of the deal. Should that happen, Humm’s directors and members of senior management may resign, leaving Abercrombie – currently a non-independent, non-executive director – the last man standing, The Australian reported.
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Cash net profit for Humm’s consumer finance business for the year to date has dropped about 61% from the prior corresponding period. The unit’s receivables fell about 3.6% between December and May, impacted by higher funding costs.
Humm’s commercial lending unit continues to grow strongly, The Australian reported. That unit’s net profit is up 47% from the prior corresponding period.
“The trading environment is very tough for Humm Consumer Finance, with intense competition, rising interest rates, and weakening consumer sentiment,” Humm chairman Christine Christian said in a statement on Thursday. “Without enhanced scale, which the Latitude transaction will deliver, the outlook for HCF will be even more challenging.”
Both Latitude and Humm can walk away from the deal ahead of the June 23 vote if they agree to do so, The Australian reported.
