Shares in the organic infant formula company Bellamy’s Australia ended nearly 55% higher yesterday as the board and management decided being independent was all too hard and revealed a sell-out to a giant Chinese dairy group.
China Mengniu Dairy Company and Bellamy’s revealed a $1.5 billion deal before the opening of the ASX yesterday via a scheme under which will see shareholders paid $13.25 a share, a 59% premium to last week’s closing price of $8.32.
The price of other companies with exposure to China rose – for example shares in vitamins group Blackmores jumped 9.4% to $84 on speculation could find a takeover from a Chinese company.
Like Bellamy’s Blackmores has run into a rough patch in China with sluggish sales and earnings growth undermining annual profit and dividends.
The giant premium saw the shares surge 54.93% by the close to $12.89, indicating that the usual line up of punters and urgers think a counteroffer could emerge and drive the price higher.
The proposed offer includes $12.65 a share to be paid by Mengniu, as well as a 60 cents a share fully franked special dividend that would be paid by Bellamy’s prior to the implementation of the scheme.
If the deal goes ahead, it is expected to be completed by the end of the year.
Mengniu is one of China’s biggest dairy companies and is listed on the Hong Kong stock exchange, with a market capitalisation of about $25 billion.
“Mengniu is a preeminent dairy company in China and an ideal partner for our business. It offers a strong platform for distribution and success in China, and a foundation for growth in the organic dairy and food industry in Australia,” Bellamy’s chief executive Andrew Cohen said yesterday.
Mengniu chief executive officer Jeffrey Minfang Lu signaled that his company had strong growth ambitions for Bellamy’s and Mengniu planned to invest in the Australian dairy industry to build capacity.
“Bellamy’s is a leading Australian brand with a proud Tasmanian heritage and track record of supplying high quality organic products to Australian mums and dads. This leading organic brand position and Bellamy’s local operation and supply-chain are critical to Mengniu,” he said.
The proposed takeover offer came less than three weeks after Bellamy’s revealed a weak 2018-19 result and outlook.
The company’s full-year profit almost halved to $21.7 million, as it battled stiff competition in China and regulatory problems in that huge market.
Revenue fell 19% to $266.2 million, below the company’s own guidance and market expectations.
The company also revealed on the day that it had pushed back its goal of delivering $500 million of annual revenue by the 2021-22 financial year because it was still to get approval for China-labelled organic products made at its Camperdown facility in Victoria.
It seems it was all too hard to remain independent and battle bigger dairy groups such as A2, Bega, Fonterra and Saputo.
But what will be interesting for investors and political observers is whether this bid runs into any problems with farmer groups of the Federal Government (especially the National Party) given the current febrile climate about China and Chinese influence in Australia. It could very well do so.