Shares in Plant Impact plunged to an all-time low after the crop enhancement group revealed that it had put itself up for a quick sale, saying it had been left facing a cash hole after Bayer broke a pledge on product purchases.
Plant Impact shares slumped by 76% to 5.25p in morning deals in London, their lowest since the 2006 listing of the company, whose products aim to promote plant functions such as flowering, disease resistance or nutrient take-up.
The tumble followed the group’s announcement that it was to open a “formal sale process within an accelerated timetable”, and indeed was already in talks “with certain parties” over a takeover.
It said it aimed to announce the outcome of the sales process, which is being handled by Peel Hunt, “very early in 2018”, although added that it was mulling less drastic options too.
These include a sale of major assets, and a refinancing - to meet a void opened up by an admission by Bayer, the German-based plastics-to-agrichemicals conglomerate, that it was to break a contract on purchases of Veritas, a soybean yield promoter which is Plant Impact’s flagship product.
Plant Impact revealed in July that it had agreed a reduced Veritas purchasing plan in South America with Bayer’s agrichemicals division, CropScience, for 2017-18 after weak farmer demand for the range of crop inputs prompted an inventory build.
However, while initially having viewed the Veritas setback a “temporary… brought about by poor market conditions”, weakened by “poor crop prices, restricted availability of farm credit and overall poor economic sentiment in Brazil”, Plant Impact on Wednesday cautioned of more longstanding woes.
Bayer CropScience revealed on Tuesday that, “given its well-publicised challenges within the Brazilian market, it will not be able to meet its commitments within the [Veritas] purchasing plan, as it needs to further accelerate its destocking activities”.
Furthermore, Bayer CropScience said that it would not unveil the first quarter of 2018 “at the earliest” be able to agree a longer-term buying agreement with Plant Impact.
‘Material adverse effect’
The delay by Bayer CropScience to further Veritas purchases “will have a material adverse effect” on Plant Impact’s financial performance, and its cash resources, which ended last month at £3.9m.
Plant Impact slashed to about £6m, from £13m, its forecast for revenues for its current financial year, and flagged the need for a cash injection.
“On its current cost run rate of £750,000-800,000 per month, the company will require funding prior to April,” Plant impact said, estimating a need for a cash injection of about £7m.
That compares with a stockmarket capitalisation of some £20m ahead of Wednesday’s announcement – and £5m afterwards.