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China Mengniu makes move for infant formula company Bellamy's Australia
[BENGALURU] China Mengniu Dairy Co Ltd plans to buy infant formula maker Bellamy's Australia for A$1.43 billion (S$1.35 billion), sending the target's shares soaring although the deal needs regulatory approval.
The deal represents a 52 per cent premium to Bellamy's Friday closing price, excluding a special dividend of A$0.60 per share paid by Bellamy's prior to implementation of the scheme, both the companies said in separate statements on Monday.
Bellamy's shares jumped as much as 56 per cent to A$12.98 each, their highest level in more than a year, but fell short of the combined offer price of A$13.25 per share, which is a 59 per cent premium to the stock's previous closing.
"It's still early days. There is a little bit of uncertainty on what might happen from here as it still has to cross the shareholders and the Foreign Investment Review Board (FIRB)," said Steven Daghlian, market analyst at CommSec.
"The reason why the shares are lifting is the actual dollar value of the takeover. A 59 per cent premium is quite big."
Australian regulators in recent years have taken a hard line on Chinese takeovers of assets such as gas pipelines and huge land holdings deemed sensitive from a national security perspective.
Australia last year also banned Chinese telecoms firm Huawei Technologies Co Ltd from supplying equipment for a 5G mobile network citing national security risks, in line with the stance of its ally the United States.
James Tao, market analyst at CommSec, said however that it should not be assumed that China Mengniu would face hurdles on national security grounds, as Bellamy's was not that kind of asset.
Representatives for Australian Treasurer Josh Frydenberg, who oversees FIRB, were not immediately available for comment.
Bellamy's board unanimously recommended shareholders vote in favour of the offer.
"It (Mengniu) 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 officer Andrew Cohen said in a statement.
Bellamy's said last month its annual profit had almost halved as sales dropped 19 per cent, hampered by a Chinese crackdown on imports by unregistered traders.
The company has faced increasing challenges with tighter Chinese customs rules for e-commerce purchases crimping informal exports to China, which Bellamy's regards as its top growth market.
Since the start of 2018, China has said its State Administration for Market Regulation (SAMR) must approve sales of imported formula after safety concerns about domestic products prompted a wave of imports.
"The timing of the offer is somewhat opportunistic given BAL's (Bellamy's) earnings are depressed and the delay in receiving SAMR approval. Mengniu will likely fast-track BAL's strategy, particularly in China," said Belinda Moore, analysts at Morgans in a note
"BAL is now in play and we cannot rule out interest from other parties given the quality of its brand."
Australia-listed shares of dairy firm a2 Milk Co Ltd and vitamin maker Blackmores gained as much as over 7 per cent and about 9 per cent, respectively.