A2 Milk raises $40 mln at 5.5% discount in oversubscribed share placement

Friday 9th October 2015

A2 Milk, which markets milk with a protein variant said to have health benefits, raised $40 million in a discounted share placement to help fund working capital in its burgeoning infant formula business.

The Auckland based firm sold 58.8 million shares at 68 cents apiece in placement, which was over-subscribed. That's a 5.5 percent discount to the 72 cents where the shares last traded on the NZX before going into a trading halt ahead of the offer, but 1 cent above the base price the company flagged yesterday. Goldman Sachs New Zealand has agreed to underwrite the issue if there had been a shortfall.

A2 also wants to raise up to $3 million through a share purchase plan to existing investors at the same price.

The capital injection will be used mainly to drive growth of infant formula sales in China, Australia and New Zealand, where sales have been ahead of budget in the first two months of its financial year.

"Infant formula is emerging as a more significant and meaningful growth driver for the company than expected, with a current focus on sales in ANZ and in China," it said in its placement announcement yesterday. "A2 is experiencing significant growth in sales of infant formula into the ANZ market as well as direct and indirect sales into China. In addition to the growth in infant formula, the prospects for growth of A2 Milk branded whole milk powder are also encouraging."

The company also hoped the placement would deepen its institutional shareholder base.

Australian media reported A2's biggest shareholder Freedom Foods Group wouldn't participate in the offer. In June, Freedom Foods and Texas-based food and beverage company Dean Foods formed an investment group that was contemplating a takeover offer for the milk marketer, which A2 ultimately rejected a month later, saying it wasn't compelling.

The proposed takeover bid triggered disclosure from A2 that it had been in advanced stages of planning for an equity raising, when the would-be buyers said as a condition of their expression of interest there be no change in the number of shares.

Yesterday, the company affirmed 2016 guidance for revenue to climb 72 percent to $267 million and earnings before interest, tax, depreciation and amortisation to jump 150 percent to $12 million before one-time items. The company held cash and equivalents of about $6.1 million as at June 30, down from almost $16 million a year earlier.

The dual-listed shares last traded at 65 Australian cents on the ASX.

BusinessDesk.co.nz

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