USA- Freshpet, a US-based public pet food company listed on the Nasdaq exchange, is under fire from Jana Partners, one of its New York-based investors, for an “ill-conceived” and “baffling” capital-raise plan.

Freshpet produces chilled pet food that contains no preservatives, and as of 2021, the company’s pet-food brands include Freshpet, Dog Joy, DogNation, Spring & Sprout, Vital, Homestyle Creations, and Nature’s Fresh.

The company sells its products in the US, and exports to Canada and Europe.

On Tuesday (14 March), Freshpet announced it intends to offer privately US$350m of convertible senior notes due 2028, which the company would mainly use for “general corporate purposes”.

Reacting to the announcement, Jana Partners issued a statement criticizing the plan.

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,” Jana Partners said. 

The investor was equally baffled by the board’s decision to pursue a substantially bigger capital raise than immediately needed.

We are further perplexed that the board is doing so with an equity-linked security, despite recently assuring investors on multiple occasions that -because it believes their stock is too cheap -it would not issue equity” the investor added. 

This altercation with Freshpet is not the first time Jana Partners has had with the manufacturer of fresh pet food. 

The investor, which holds a near-10% stake in Freshpet, has previously called on the company to weigh up the “strategic value in a sale” to potentially “significantly larger players” in the pet-food category.

This current altercation is a renewal of that call, suggesting Freshpet “requires either significant board change or, in the absence of such change, should be sold”.

Jana suggested the Freshpet board had been “caught flat-footed, having failed to anticipate the terrible market response to this announcement” after shares of Freshpet fell as much as 19% a day after the announcement. 

Jana added that “this decision is the latest failure by Freshpet’s board at a time when it could ill afford further damage to its credibility.

According to a regulatory filing in December 2022, the activist investment firm planned to launch a proxy fight with the company and run for board seats. 

In 2022, Freshpet made a net loss of US$59.5m, up from US$29.7m the previous year. However, its Q4 losses narrowed, year-on-year, from US$9.3m to US$2.9m.

These statistics are further concerns for investors like Jana Partners. 

According to Statista, revenue in the Pet Food segment is US$147.30bn in 2023, and the market could grow annually by 11.11% (CAGR 2023-2027). 

Therefore, it is a market that keeps attracting companies with different offerings and investors into these companies as well. Companies in this sector have to meet the needs of their investors and strive to make decisions that will not inspire critical disruptions in their operations. 

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