Bellamy’s Share Price Up on Chinese Takeover: Implications for A2 Milk

At time of writing, the Bellamy’s Australia Ltd [ASX:BAL] share price has gone vertical, up 54.81% trading at $12.88.

The big news today is that a Chinese company has lobbed a takeover bid at Bellamy’s and the deal will include a fully franked dividend of 60 cents per share.

This has sent the Bellamy’s share up in a big way today after it had gyrated between $6.71 and $11.96 over the last 12 months:

Source: tradingview.com

We look at the implications that the Bellamy’s takeover has for other ASX-listed infant formula companies that are trying to crack the lucrative Chinese market, in particular A2 Milk Company Ltd [ASX:A2M].

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Bellamy’s share price rises to within a whisker of scheme offer

With the Bellamy’s share price sitting at $12.88, at time of writing, this is just shy of the amount offered by China Mengniu Dairy Company Limited [SEHK:2319] under a Scheme Implementation Deed.

Here are the details of the offer:

• $12.65 cash per share
• 60 cents per share fully franked special dividend paid by Bellamy’s prior to implantation of scheme

This represents a 59% premium to Friday’s closing price of $8.32, so a big win for Bellamy’s shareholders is on the cards.

The Bellamy’s Board has unanimously recommended the deal with Bellamy’s CEO Andrew Cohen saying:

‘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.’

The scheme is expected to be implemented before the end of the year.

Implications for A2M, and other infant formula companies

It’s interesting to see what has happened with other ASX-listed infant formula/dairy companies today.

At time of writing, the A2 Milk share price [ASX:A2M], the Bub’s share price [ASX:BUB] and even the Keytone Dairy share price [ASX:KTD] are getting healthy bumps of around 3–5%.

It’s similar to what happened in the lithium space when Kidman Resources Ltd [ASX:KDR] received a takeover offer from Wesfarmers Ltd [ASX:WES]. For example, Galaxy Resources Limited [ASX:GXY] experienced a brief surge before continuing its slump.

Investors sometimes get excited about the prospect of other lucrative takeover offers being made for their company.

It’s hard to say what exactly the long-term impact this will have on companies like A2 Milk.

One scenario is that with Mengniu Dairy’s help, the Bellamy’s brand could start to muscle out competitors.

Regulatory hurdles could become easier to overcome and specialised marketing could help them grow brand awareness.

While all this is a fair way down the track, the A2 milk share price could be negatively impacted once the scheme has been implemented and data starts to emerge regarding Bellamy’s market share.

Regards,

Lachlann Tierney,

For Money Morning

PS: Once upon a time, Bellamy’s was a small-cap stock. Get the names of four stocks that could be on their way to a similar heights in our free report on our ‘4 Favourite Small-Cap Stocks for 2019.’