ZURICH, SWITZERLAND — Cobas Asset Management, Aryzta AG’s biggest shareholder with a 14.5% stake in the company, has asked Aryzta’s board of directors to call an extraordinary general meeting to discuss a better capital plan for the company than the one currently in consideration.

While acknowledging it was pleased to see Aryzta’s business has stabilized and management has set mid-term targets, Cobas said it “cannot defend actions that lead to such destruction of shareholder value as would occur through the highly dilutive capital increase proposed by Aryzta’s board of directors.”

Cobas said it feels “compelled to vote against” Aryzta’s board of directors’ proposal to raise €800 million in capital to cut debt and restore growth. The asset management firm described Aryzta’s current €800 million plan as “inefficient" and “not required from an operational and financial perspective.”

In August, Aryzta said its efforts to raise the needed capital primarily will be through a rights issue with pre-emptive rights for existing shareholders. Proceeds from the capital increase are expected to be used mainly for debt reduction, the company said.

Aryzta indicated that the operational improvement portion of its business plan is underpinned by Project Renew, a comprehensive set of initiatives put forth by the company targeting annual run rate cost savings of €90 million by fiscal 2021. Aryzta said Project Renew aims to enable a three-year cost reduction of €200 million during fiscal 2019 to fiscal 2021, including operating model cost reductions, procurement and supply chain initiatives, and automation initiatives.

But in an Oct. 10 letter to Gary McGann, chairman of Aryzta’s board of directors, Francisco Garcia Parames, chairman and chief executive officer of Cobas, identified four key proposals Cobas would like Aryzta to consider before its annual general meeting set for Nov. 1:

• To undertake immediately a €400 million capital raise, fully supported by shareholders, and to support a further €400 million capital raise in 12 months' time, if needed.
• To sell some non-core assets. Cobas said it has identified an asset worth more than €200 million and has received an expression of interest from a buyer that has shown an interest in closing the transaction in a short time frame.
• To continue the efforts to sell Picard.
• To obtain a credit rating to increase financing options to fund additional needs.

“With these steps the company could receive above €600 million in the very short term with minor costs involved, an amount that is close to the one proposed by the board (€750 million, including costs),” Mr. Garcia Parames said. “The company could thus possibly receive close to €1 billion during the next 12 months, if we include Picard and free cash flow generated by the business.

“We reiterate that, if this proves not to be enough, we are willing to support an additional capital raise in 12 months, though we firmly believe that this will not be necessary. We think this is a very strong alternative that should be supported by the board and by all shareholders, avoiding a confrontational (annual general meeting).”

Responding to Cobas's call for an extraordinary general meeting, Aryzta said its board of directors and executive committee unanimously believe that “a capital raise in an amount of €800 million is in the best interests of Aryzta, a majority of its shareholders and its other stakeholders, is the financing option and transaction which has the highest probability of success for Aryzta and all stakeholders, including its shareholders, and is the only proposal that addresses the critical issue of commercial confidence in the group.

“The board of directors and the executive committee unanimously believe that a capital raise of €800 million is required in order to strengthen Aryzta’s balance sheet, provide necessary liquidity and working capital funding, provide the group with the time and financial flexibility to deliver on its multiyear turnaround plan and enable Aryzta to maximize the value of its non-core asset disposals for further net leverage reduction. As such, the board of directors recommends that all shareholders vote in favor of its capital raise proposal at the AGM to be held on Nov. 1, 2018.”