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May 1, 2020

With $250M in outside investment, Covetrus reduces short-term debt

Photo / William Hall Covetrus Inc., which is getting a $250 million investment from a New York firm, is building a new, 140,000-square-foot headquarters in Portland's East End,

A large shareholder in Portand-based Covetrus Inc. (Nasdaq: CVET) is taking an additional $250 million stake in the company and could soon own one-quarter of it.

Clayton, Dubilier & Rice, a New York-based private investment firm, will purchase Covetrus convertible preferred stock with a 7.5% dividend, Covetrus said in a news release Thursday. The stock can be converted into common shares at a price of $11.10 per share, a premium of 40% over the volume-weighted average price during the past 30 days.

Covetrus said it will use the sale proceeds to pay down some of its short-term debt and for general operations.

As converted into common stock, the new investment and Clayton’s previous holdings will give the firm ownership of roughly 25% of Covetrus’ outstanding shares. However, terms of the preferred stock cap the investor’s voting interest at 20%. Clayton will have the right to make two appointments to the Covetrus board of directors.

Covetrus is a provider of animal-health products, services and technology, with 5,500 employees worldwide including about 300 in Portland. The company was formed by the 2019 merger of Portland-based Vets First Choice and the veterinary products business of Henry Schein Inc. (Nasdaq: HSIC) in Melville, N.Y.

In its first year, Covetrus experienced a series of challenges, including an investor lawsuit alleging fraud and the departures of its founding chairman, David Shaw; its founding CEO, Shaw’s son, Benjamin; and the CFO, Christine Komola.

Clayton has been a “significant” shareholder of Covetrus since its formation and initially invested in Vets First Choice in 2015, according to the release.

“We believe Covetrus has the customer relationships, technology capabilities and financial resources to not only navigate COVID-19 but also to deliver strong performance through the eventual market recovery and create long-term shareholder value,” said Ravi Sachdev, partner at Clayton, Dubilier & Rice.

Covetrus President and CEO Ben Wolin said, “We are pleased to expand our relationship with CD&R as we look to best position our business and fortify our balance sheet during this period of uncertainty.”

Late Friday morning, shares of Covetrus were trading at about $11.30, down from Thursday's close of $11.89. The company has a capitalization of $1.3 billion.

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