Ascendis Health's descent continues as lenders demand immediate debt repayment

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Wellness company Ascendis Health has to cough up the money it owes its lenders
Wellness company Ascendis Health has to cough up the money it owes its lenders
  • Ascendis Health held an AGM on Monday following a court order compelling it to do so. 
  • In October, the company entered into a recapitalisation agreement with the lenders, Blantrye Capital and L1 Health, after finding itself with a R7.7 billion debt pile.
  • Part of the agreement was that Ascendis not make changes to its board without the prior written approval of the lenders' agent.

Ascendis Health's hastily reconvened annual general meeting (AGM) on Monday may have been a costly mistake for the wellness company, after it effectively triggered the cancellation of an agreement it had made with its lenders.

As a result, the Solal and Junglevites owner may have to sell off its pharmaceutical and consumer businesses to pay off its lenders. It also has the option of selling the pharmaceutical business and having a rights issue.

Another possible option is for Ascendis to have a binding commitment letter and term sheet for financing, or a funding agreement for the repayment of its debt.  

The company, which was established in 2008 by Karsten Wellner, found itself in the crosshairs of its lenders when it amassed a R7.7 billion pile of debt. For a moment, it seemed to have averted business rescue by entering into a recapitalisation agreement with its lenders, Blantrye Capital and L1 Health, in October.

The terms of the agreement were that the lenders would get Ascendis' Cyprus-based pharmaceutical business, Remedica, as well as its Sun Wave Pharma business in Romania. This would be in addition to the proceeds from the wellness company’s animal health business and Respiratory Care Africa business.

In return, the lenders would provide Ascendis with €15 million (~R269 million) over two years, and an additional €20 million for transaction and head office restructuring costs, as well as working capital.

However, the wellness company found itself in trouble once again after its court-ordered AGM on Monday. Shortly after announcing that the meeting would take place, Ascendis received a letter from the lender agent reminding it that changes to the board without prior written approval could trigger a cancellation of its debt facilities, making payment due immediately.

The AGM itself was contentious, with shareholder Cambridge Investments approaching the Gauteng High Court last weekend to compel Ascendis to hold the meeting after initially postponing it to next month. The postponement followed a complaint and threat of litigation by another group of shareholders, should the meeting take place.

After reinstating the meeting on Monday, shareholders voted for new board members, including founder Karsten Wellner and Gary Shayne, who were leading the company when it began its downward spiral, eventually leading to its share price crashing by more than 97% in the past five years. The group also appointed its former chairman and CEO Andrew Marshall as the new CEO, following Mark Sardi's resignation.

Both the reinstatement of the meeting and its outcome got mixed views, with some shareholders supporting it, while others said they preferred the postponement.

For the Retail Activist Investors, holding the AGM on the original date on Monday made the most sense.

Harry Smit, spokesperson for the Retail Activist Investors - a group that has been vocal about the company’s governance and business - said the second postponement was unprofessional.

Smit was voted in as a non-executive director on Monday, giving the activists a stronger voice in the company.

But the final result of the AGM drew criticism, with some saying the people who had overseen the group when it began to crash were voted back on to the board.

Smit said this has been misconstrued.

"I’m not saying the old board was perfect, there are boards that make mistakes, but they are not there to take over a chairmanship or to take CEO roles. They are there because they know the business inside and out," he said.

He added that finding new people would take months and the business had to continue operating with people who know it and understand the industry at its helm.

Shareholders have been at odds about whether Ascendis should be delisted, which is something the board is still considering. They have also disagreed on the company’s growth strategy going forward, said Smit.

Piet Viljoen, executive director and portfolio manager at Counterpoint, said the makeup of the new board reflected the wish of the majority of shareholders. But he agreed that the makeup of the board puts Ascendis right back where its troubles began.

As for the timing of the AGM, Viljoen said he would have preferred that it took place later, since it was too late to change his votes from the initial postponed meeting, since Ascendis had sent out the notice on the morning of the meeting. 

With regards to Ascendis' other problems, he said as an outside, passive, minority shareholder, his views were not relevant.

"However, I am sure there are tensions between shareholders as the company owns some valuable assets. But is also saddled with a lot of debt. To restructure a privately held business is a lot easier and more efficient than trying to do so in a listed environment."

The wellness group’s share price fell by almost 11% on Wednesday afternoon. 

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