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GERARD HUTCHING / Things
A2 is moving into nutraceutical manufacturing but retaining its supply partnerships with Synlait and Fonterra.
The a2 Milk Company has confirmed that it will acquire a 75% stake in Southland dairy processor Mataura Valley Milk for $ 268.5 million.
Mataura Valley President Dr. Tingwu Xue said that a2 would be a strategic partner as “both companies share the same vision of creating large-scale world-class nutritional manufacturing at MVM.”
“A2MC already works closely with our sister company China State Farm and is highly respected in the Chinese market.”
A2 CEO Geoff Babidge said the deal gave his company the opportunity to enter the manufacturing of nutritional products and provided geographic and supplier diversification, as well as strengthening ties with key partners in China.
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Mataura Valley’s current majority shareholder is a Chinese state-owned company, China Animal Husbandry Group (CAHG), which will retain a 25 percent stake.
The group is a subsidiary of China National Agriculture Development Group, which is the parent of a2’s strategic logistics and distribution partner in China, CSFA Holdings Shanghai (China State Farm).
John Hawkins / Stuff
Mataura Valley Milk opened its $ 226 million plant near Gore in 2018.
Babidge said he was pleased that the transaction had the support of all of Mataura’s existing minority shareholders, “many of whom are agricultural suppliers.”
The purchase will give it dual supply agreements for nutritional products, complementing its existing supply relationships with Synlait Milk and Fonterra, he said.
It would be done on a cash-free, debt-free basis and funded from a2’s existing cash reserves, but requires approval from the New Zealand Office of Overseas Investments. A decision is expected in May.
Mataura has been looking for a financing partner since reporting a net loss of $ 47 million in 2019. During the closing, it also suffered a drop in the exchange rate from the US to New Zealand.
In contrast, A2 has performed particularly strongly in recent years, finding support for its milk brand among Australian customers and making inroads into China. But so far, it has not been a manufacturer.
Strong optimism about dairy exports during the pandemic pushed A2’s share price to $ 21.50 in August.
But recently, shares tumbled after the company revealed a drop in orders from its Chinese “daigou” resellers in Australia, who rely on tourists and international students.
As a result, its stock price fell to less than $ 11 last Friday following a drop in projected earnings. It is not currently trading at $ 11.89.
Babidge said Mataura would give A2 access to manufacturing margins, as well as access to “a growing, productive milk reserve, supported by favorable weather conditions and availability of water.”
A2 expected to incur a one-time $ 10 million in transaction costs, half of which would be recognized in first half results.
