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A2, Synlait shares climb as takeover bid revives optimism about Chinese appetite for milk

Monday 16th September 2019

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A2 Milk and Synlait Milk shares jumped in early trading as a A$1.5 billion takeover bid for Bellamy's Australia revived optimism that Chinese demand for dairy products remains strong. 

ASX-listed Bellamy's today said it's received a A$13.25 per share offer from China Mengniu Dairy Co and that its board will support the bid. That's a premium to the A$8.32 price the shares closed at on Friday. China Mengniu is familiar with the Australasian market through Yashili New Zealand and Burra Foods Australia. It was also one of the unsuccessful suitors of Murray Goulburn. Bellamy's soared 51 percent to A$12.55, less than the A$12.65 cash component of the offer which also allows for a 60 cent special dividend. 

A2 has had more success than its smaller Tasmanian rival in navigating the Chinese market, especially in securing regulatory approvals. A2's shares rose as high as $15.40 in early trading today, and were recently up 4.6 percent at $14.67 after the ASX opened. Supplier Synlait was recently up 3.3 percent at $9.30, having climbed as high as $9.51. 

"I think it’s probably a response to the fact that A2 is arguably better positioned than Bellamy’s in China, given the issues that the latter has encountered with securing regulatory approvals," said Fat Prophets head of research Greg Smith. 

"The takeover offer is also a reminder that the demand growth story in China here is very real, and reaffirmed by the bid from a Chinese company."

Tasmanian-based Bellamy's ran into trouble in China in 2016 when that country tightened its infant formula regulation. It subsequently had to raise money at a discount to change its milk supply contract with Fonterra Cooperative Group to meet China's tougher import criteria. 

Meanwhile, A2 recently reported a 74 percent jump in revenue from China and Asia at $405.7 million for the year ended June. 

A number of Chinese firms have been willing to pay above the odds for New Zealand and Australian dairy companies. Locally, Westland Dairy Cooperative was sold to Inner Mongolia Yili Industrial Group for $588 million, a premium of almost 150 percent. 

Smith said to expect more interest from Chinese suitors.

"The first move is rarely the last, and other Australasian listed companies could also be in the frame of M&A interest from Chinese predators," he said. 


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