The $8.7 million purchase agreement relates to almost all the plant assets owned and operated by Galaxy, a maker of nutritious plant-based dairy products for the retail and foodservice markets. If approved by the company's lenders and shareholders, the transaction is expected to close on or about November 1.
The agreement allows for the eventuality that the shareholders will not approve the transaction, with the provision for an alternative transaction whereby the Galaxy would sell to Schreiber a smaller portion of the assets for $2.1 million. However this alternative sale would still be subject to approval from the company's lenders.
The supply agreement, covering both manufacturing and distribution of all the company's products, will come into effect on September 1 for an initial five year period, with the option for up to two five year extensions. It also includes the purchase of Galaxy's remaining raw materials, ingredients and packaging on or before November 1.
"By agreeing to sell our plant assets and contract with Schreiber Foods for the production and distribution of our healthy food products, we expect to retire all of our outstanding debt with Wachovia Bank and realize significant cost savings going forward," said Galaxy CEO Michael Broll.
The company's debt with Wachovia is estimated to be $7.5 million as of November 1 2005, all of which it plans to pay off with the proceeds from the plant sale.
Broll said that his company will benefit from the production and operational efficiencies of Schreiber, a much larger dairy company with global annual sales in excess of $2 billion.
"In the future, we will be able to focus our activities upon new product development and the marketing of our expanding line of dairy alternative products into the retail and foodservice markets.
"During the first 12 months following the completion of these proposed transactions, Galaxy should realize significant production and distribution cost savings, and such savings should increase as our sales grow in future years," he added.
Galaxy will release its financial results for the year ended March 31 2005 next week.
In 3Q 2005, however, its gross margin declined by $0.58m due to rising casein costs. Nonetheless net sales increased 10 percent over the quarter, reaching $10.6 million compared with 9.6 million in 3Q 2004 and the company trimmed its loss from operations to $0.45 million, from $1.12 in last year's comparable quarter.
The company's management has also been going through a transitional period, with two CEO changes in 18 months. Michael Broll took up the helm in July 2004 from Christopher New, who himself had only replaced founder and president Angelo Morini in December 2002.