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Secaucus-based Freshpet completes $391.4M capital raise

However, plan blasted by activist investor firm

Kimberly Redmond//March 21, 2023//

Secaucus-based Freshpet completes $391.4M capital raise

However, plan blasted by activist investor firm

Kimberly Redmond//March 21, 2023//

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After announcing plans to raise $350 million in capital, Secaucus-based refrigerated pet food maker Freshpet Inc. more than surpassed its goal.

“In response to strong long-only investor demand and robust after-market performance, the initial purchasers fully exercised their option to purchase an additional $52.5 million aggregate principal amount of the Notes, included in today’s closing, raising a total of $391.4 million in net proceeds for Freshpet to invest in its Fresh Future growth plans,” the company said.

Freshpet announced its intention March 14 to offer $350 million of convertible senior notes due 2028, which the company said would be used for “general corporate purposes.”

In a statement following the offering’s closing March 20, Freshpet Chief Financial Officer Todd Cunfer said, “We are pleased to close on this important financing for the Company. We appreciate the strong support from both existing holders and new investors which we believe was reflected in the performance of our stock during and post the day of marketing.

“The proceeds provide the financial flexibility we need in the most cost-effective manner and fulfill our commitment to strengthen our capital structure to support the long-term growth in demand for Freshpet products. Importantly, this transaction was structured to minimize the potential future dilution for our equity shareholders with an effective 120% conversion premium and results in an effective interest rate that is materially below what could have been achieved with traditional debt securities,” he continued.

However, the plan to raise capital was blasted by Jana Partners LLC, a New York-headquartered activist investing firm that holds a nearly 10% stake in Freshpet.

After describing the effort as “ill-conceived,” Jana Partners said in a March 15 statement it believes Freshpet “requires either significant board change, or, in the absence of such change, should be sold.”

Jana Partners has previously called on Freshpet to consider operational changes and improve how it allocates capital, in addition to exploring a sale to other players within the pet food category. It has also indicated in a December 2022 regulatory filing it intends to launch a proxy fight with the company and seek board seats at Freshpet’s annual meeting in October.

In its comments last week, Jana Partners said, “We are astonished that Freshpet’s board has elected to initiate a large equity-linked capital raise in a fragile market reeling from a systemic crisis in the banking system, and with the company’s shares trading at less than 50% of their 52-week high. Equally baffling is the board’s decision to choose this moment to pursue a substantially larger capital raise than immediately needed.”

Founded in 2006, Freshpet manufactures, markets and distributes fresh, natural pet food and pet treats
Founded in 2006, Freshpet manufactures, markets and distributes fresh, natural pet food and pet treats. – FRESHPET PRODUCTS

A representative for Freshpet declined to comment on Jana Partners’ statement.

Founded in 2006, Freshpet manufactures, markets and distributes fresh, natural pet food and pet treats that made from fresh meats, vegetables and fruits that are free of preservatives, additives and artificial ingredients.

After initiating a turnaround plan in August 2022 aimed at improving logistics, commodities and quality, Freshpet made a flurry of changes to its leadership, including the departure of CFO Heather Pomerantz and the appointment of Cunfer as her replacement. 

During the most recent earnings call Feb. 27, Freshpet Chief Executive Officer Billy Cyr said, “The message I would like you to take away from today’s call is that our house is getting back in order after the stumbles we had earlier in 2022. It is not perfect and it will take some time for us to get all the systems and processes, working the way we want them to. But the actions we have taken since our early September announcement of organizational changes and a renewed focus on our key costs are beginning to show their potential impact.”

His comments came as Freshpet reported $165.5 million in net sales for the fourth quarter, a 43% increase from the prior year period, and $595.3 million in net sales for fiscal year 2022, a 40% growth year over year.

Cyr noted that the quarterly results are the strongest that Freshpet has posted since it went public in 2014. Additionally, 2022 marked the company’s six consecutive year “of accelerating growth and also our strongest net sales growth” since its shares began trading on the NASDAQ Global Market.