Humm Group continues to tear itself apart as the acrimony on the board over the failed attempt to sell its consumer finance business spilled over in the shape of wholesale boardroom changes on Wednesday.
The mass resignation of directors flagged in a statement on Wednesday saw the shares lose another 3.8%, to take the loss for the last five days to close to 30% and more than 45% year to date.
The shares finished at 50.5 cents as the ill-will between the board and founder and major shareholder Andrew Abercrombie dominated business news headlines once again.
Yesterday’s closed is sharply lower than the 93 cents the shares reached after the Latitude deal was revealed earlier this year.
(Though, some of that fall has to be sheeted home to the way the market has completely re-rated companies anywhere near the Buy No Pay later sector, as the Humm consumer business sale to Latitude was pitched.)
Mr Abercrombie led a very public campaign against the sale of the company’s consumer finance business to Latitude, the Melbourne based financier of Harvey Norman’s credit purchases.
It is clear the split between him and most of the board can no longer be papered over – it is irrevocable from Wednesday’s statement from five directors who have done the ‘Wall Street Walk” – leave rather than stay and try to tough it out.
In a statement to the ASX on Wednesday morning, Humm said:
“The events leading to the termination of the proposed sale of Humm Consumer Finance to Latitude Group Holdings Limited have caused the Majority Directors of Humm group limited to conclude that they cannot remain on the Board of Directors with Andrew Abercrombie.”
“The Majority Directors believe that it is in shareholders’ interests for changes to the composition of the Board of Directors to be made in an orderly fashion. As such, the following will occur:
- Alistair Muir and John Wylie AC have notified of their decision to resign, effective immediately; and
- Carole Campbell, Christine Christian AO and Rajeev Dhawan will resign once replacement directors have been appointed.
“This will enable a new Board of Directors to take the Company forward and deal with the challenges and opportunities ahead.”
Wednesday’s statement came after a letter to shareholders was released Tuesday evening explaining why the Latitude deal was not done.
In it the majority directors criticised Mr Abercrombie and what they termed his “strident campaign” against the proposed sale.
“Much of the commentary he published was emotion-driven, inflammatory, and provided little clarity on what precise future strategy he envisages for Humm Consumer Finance (HCF), or on what basis he believed Latitude were going to pay more for HCF,” the majority directors said.
Some of the information he published was false and misleading, which we instructed him to take down from his website. He persisted in telling shareholders to vote against the transaction. There is still essentially no clarity on the future strategy he envisages for HCF.”
The directors said that the value of the sale had dropped since the board had recommended it earlier this year, because of the drop in Latitude’s share price.
That fall in value was why the deal fell apart on Friday, with the infighting adding to the drop in the value.
Humm chair, Christine Cristian said the consumer lender had to abandon its plan to sell its buy now, pay later (BNPL) business after a sustained fall in the share price of buyer Latitude which sunk the value of the deal.
Humm Group, formerly known as Flexigroup, earlier this year agreed to sell its consumer finance business to Ahmed Fahour-led Latitude Financial for $335 million, in a deal that would ramp up Latitude’s push into the BNPL sector.
Humm would have been left as a commercial finance business.
In statements released to the ASX on Friday, Humm and Latitude said they had mutually agreed to abandon the proposed sale due to major disruption in the markets.
Latitude had offered $35 million in cash and 150 million in shares, meaning the deal’s value fell to around $240 million instead of $335 million when first announced.
An independent expert had assessed the equity value of Humm’s consumer finance business to be in the range of $260 million to $308 million.
Ms Christian cited the current turbulence in the market as a key reason for the deal being dumped.
That might have been the public reason but underlying the proposed deal between Humm and Latitude was opposition from Humm founder and major shareholder Andrew Abercrombie, who labelled it a “garage sale”.
He campaigned very publicly against the sale, urging other shareholders to reject it.
Last Friday he said that from the start, he believed the deal had undervalued Humm Consumer Finance.
“The terminated deal has inhibited progress for HCF but also produced some positive outcomes. I ask shareholders for patience and am confident this company has a bright future,” he said.
On Wednesday he was confident he could get it all together and rebuild.
Now the board has fallen apart, which will make his attempts to rebuild that much harder.
Humm’s woes may have flowed over onto Buy Now Pay Later (BNPL) group Zip.
Zip shares were weak and had lost more than 6% to trade at 49 cents before a mid-afternoon statement emerged from the company with an update but also the surprise news (buried) that Pippa Downes, a board member and head of the company’s audit and risk committee since 2020, had quit without explanation.
That saw Zip shares fall further to 46.5 cents and a loss of more than 11% for the session.
The remarks about Ms Downes were brief, but the lack of any explanation from the company, or remarks from her as to why she quit, unsettled investors.
“Zip advises that Non-Executive Director, Pippa Downes has elected to resign from her position on the Zip Board of Directors today.
“Ms Downes has served on the Zip board since 2020 as chair of the audit Committee and a member of the Remuneration, People and Culture and Nomination Committees.
Chair of the Board, Diane Smith-Gander said, “On behalf of the Zip Board and Management team, I would like to thank Pippa for her contribution. We wish her the very best for the future.”
“The Board will begin the process of appointing a new Non-Executive Director and chair of the audit and risk committee.”
That news undid any goodwill from the company’s comments in the update about how its “underlying business remains strong”… with a solid pipeline of enterprise merchants coming onto the platform – including Qantas, eBay and Best Buy “…”The acquisition of Sezzle remains on track and is heading to a shareholder vote later this calendar year. “
The company emphasised how it thought it could handle rising interest rates.
And there was recognition in the statement that while the BNPL business was under pressure here and offshore, opportunities were there for the group.
“We acknowledge that while we are not immune to market volatility, there remains significant opportunity for Zip and Buy Now, Pay Later products in a heightened inflationary environment.”
Zip said it has cut costs, restructured various parts of the businesses here and offshore, simplified processes to generate around $30 million plus of cost savings for the 2023 year.
Zip Co-Founder and Global CEO, Larry Diamond said in the statement:
“We have been clear that in response to current market conditions our strategic priorities are to focus on our core business, both products and regions, and accelerate the group’s path to profitability.
“In an environment where wage growth is falling behind heightened inflationary pressures, affordability becomes an even more important priority for consumers as they budget each month.
“We are well-funded and positioned to execute on the significant market opportunity as we execute and take control of our future.”
The company said that as at March 31 it “had more than sufficient headroom to support transaction growth, with $401.9m undrawn and available in Australia, and US$168.1m available in the US.
“Zip remains well-funded with $303m available in cash and liquidity as of 31 March 2022 plus an additional $24m raised from the SPP in April, which is expected to be sufficient capital to see the Company through to cash flow breakeven in FY24.
Zip said it will provide the market with a more detailed update on our progress at the upcoming 4Q22 result on July 21.
But the loss of Ms Downes was a negative.