A2 milk company (hereinafter referred to as: A2 milk) wants to take a stake in Matola dairy, which is controlled by the central enterprise, which has been officially confirmed. This means that, if all goes well, the milk powder maker, which has become popular in the Chinese market in recent years, will have a milk powder factory of its own as the largest shareholder for the first time.
It is worth noting that after the news was “announced by the government”, xinlaite dairy, which is responsible for the production of Chinese version A2 infant milk powder, also made a quick response. Now, let’s have a look.
Plan to spend 1.2 billion on acquisition
Let’s start with A2 milk.
According to the A2 milk announcement released today, the company confirmed that it was in discussions with mataura Valley milk to explore options for A2 milk to participate in the production of matoura dairy’s plant in the southern region of New Zealand.
It is found that the factory was invested and built by a large state-owned enterprise “China pastoral industry and Commerce Group Co., Ltd. (hereinafter referred to as” Zhongmu group “) and officially put into operation in 2018. According to the data of China animal husbandry group, the design capacity of the above plants is 50000 tons, and the main products are baby milk powder, whole milk powder and skimmed milk powder.
A2 milk CEO Geoff babidge said in the announcement that the company plans to make further investment in the matoura dairy plant to build raw material mixing and can body capacity at the matoura dairy plant to support the establishment of a complete infant nutrition production plant. Today, the snack agent looked through the information of the General Administration of customs and noticed that the factory has not yet been granted the import qualification for infant powder production.
According to the transaction details disclosed by A2 milk, after discussion, the company has made a non binding indicative tender offer to acquire 75.1% of Matola dairy for a total consideration of about NZ $270 million (now about RMB 1.22 billion).
It is reported that the overall value of Matola dairy is about S $385 million. After simple calculation, we can see that the purchase price of A2 milk is slightly lower than the current value of Matola dairy.
Matola milk powder factory
It is reported that the transaction has now entered the stage of exclusive due diligence. “Matola dairy has now agreed to provide A2 milk with an exclusive right for a period of time to conduct confirmatory due diligence and negotiate a version of the transaction document.”.
As for the expected progress of the transaction, A2 milk said that the discussion with Matola dairy is still in progress and has not been completed, and it still needs to wait for further due diligence, negotiation of final agreement and necessary regulatory and third-party approval. “All transactions based on the current discussions are expected to be completed by the end of fiscal year 2021, and all funding requirements will come from existing cash reserves.”.
If the deal goes through, Matola’s big boss will turn into A2 milk. According to the announcement, under the proposed terms, if the deal is completed, China Animal Husbandry Group’s stake in Matola dairy will become 24.9%.
It is worth noting that the acquisition plan of A2 milk may also be “tied” by Chinese partners, whose China strategic partner and China animal husbandry group are “brother companies”.
A2 milk announced that the above exclusive arrangement was supported by China animal husbandry group, the major shareholder of Matola dairy. According to the announcement, China animal husbandry group is a wholly-owned subsidiary of China Agricultural Development Group, and China Agricultural Development Group is the parent company of A2 milk’s China strategic partner, Zhongken Shanghai company.
Xiaoshidai has introduced that Zhongken company is the exclusive distribution partner of A2 milk in China. The two sides announced cooperation as early as 2013 and renewed the strategic cooperation agreement in 2018. Under the new agreement, China reclamation has the exclusive right to import and distribute A2 products for a period of three years, with an option to extend it to four years.
Does not affect existing cooperation
Back to the acquisition initiated by A2, supporting the growth of infant formula is still the core reason. “As previously announced, we have been assessing the options and capabilities to participate in capacity as our infant nutrition business continues to expand,” Geoffrey babidge said in the announcement
At the same time, Geoffrey babidge stressed that the acquisition plan would not affect the current partnership with the original suppliers.
“We hope to complement and consolidate (capacity) our current strategic relationship with synlaite dairy and Fonterra, which will remain unchanged.” He said the potential investment in the Matola plant was in line with A2 milk’s strategic goal of expanding capacity.
Geoff babidge, CEO, A2 milk
Xiaoshidai noted that the New Zealand media quoted and analyzed today that the acquisition plan of A2 milk “may be a problem” for synlaite.
“It’s an interesting strategy because having infrastructure to produce is a heavy asset model,” the analyst said. If A2 decides to make its own production, this will obviously be detrimental to the additional supply, including the Pokeno plant. At present, synlaite is still in the process of solving some legal problems faced by the Pokeno factory. “
Interestingly, after the “official announcement” of the above acquisition plan, Synlait dairy, one of the partners, also issued a response announcement.
“Synlaite has established a long-term stable, strong and complementary partnership with A2 milk, which will continue to consolidate as the two companies grow together,” the announcement said. Synlaite will be committed to fulfilling the cooperation agreement. “
In the announcement, Synlait dairy also made a special cue to the Chinese market, saying that its infant nutrition production capacity met the high standards of China (the world’s largest infant nutrition market), which supported the growth of A2 milk. According to the introduction of snack agents, the milk powder from A2 to infant sold in the Chinese market is produced by synlaite.
Last year, the company announced a new milk purchase agreement with Wright. According to the revised agreement, the five-year agreement on A2 to infant formula and other products announced by both parties in July 2018 will be extended for another two years, which can be maintained at least until July 31, 2025.
At present, the infant milk powder of A2 milk is produced by OEM mode, and the company has not set up its own milk powder factory. In order to ensure the stable supply of synlaite dairy, A2 milk not only signed a contract with it, but also became its second largest shareholder by holding nearly 20% of the company’s shares. The largest shareholder of synlaite dairy is bright dairy.
Increase the Chinese market
It is unclear which A2 milk products will be produced and what markets will be supplied if the transaction is successfully completed. After the end of the existing agreement between A2 milk and synlaite, whether the Matola plant will join the supply team of A2 milk in China.
But at least for the Chinese market, A2 milk needs to “pave the way” for continued high-speed expansion.
According to the company’s annual report for fiscal year 2020 recently, the growth rate of Chinese labeled infant nutrition products (i.e. from A2 to the beginning) remained high during the reporting period, with sales more than doubling to NZ $337.7 million. At present, A2 accounted for 24% of the total sales of infant formula milk powder.
The company also said that with the gradual easing of restrictions in the Chinese market, A2 milk has resumed the scale of its marketing plan in the second half of the fiscal year, including substantial media investment, and has worked with distributors and retailers to improve the store brand experience.
“In the current financial year, our investment in marketing was NZ $194.3 million, an increase of 45.1% over the same period last year, mainly due to the increase in our investment in marketing in China.” A2 milk said.
“In China, we are still focused on strengthening our position in the infant nutrition market, and we believe that there is still considerable room for growth in this market.” A2 milk said group revenue is expected to continue to grow strongly in fy2020, thanks to continued investment in marketing and organizational capabilities.