China Mengniu agrees to buy Bellamy’s for $1 billion

Bloomberg

China Mengniu Dairy Co agreed to buy organic infant formula maker Bellamy’s Australia Ltd for A$1.5 billion ($1 billion), securing a premium brand in one of the fastest-growing segments of the dairy market.
The Hong Kong-based firm offered A$13.25 per share for Bellamy’s, a sizable 59 percent premium to the stock’s last closing price. The Launceston, Tasmania-based company’s board unanimously recommended
the offer.
The deal, which is subject to approval from Australia’s Foreign Investment Review Board, would hand China’s second-largest dairy producer a trusted formula brand as it seeks to wrest back market share from global rivals. Bellamy’s has been producing formula in Australia since 2004 and is a stalwart of supermarket shelves there, part of the appeal for Mengniu with Chinese consumers still wary of local manufacturers after a tainted baby milk scandal more than a decade ago.
The deal will help Mengniu extend its portfolio into premium products after it acquired control of lower-end maker Yashili International Holdings Ltd. in 2013, according to UOB Kay Hian Ltd analyst Robin Yuen.
“It gives them a complete product portfolio across lower and higher-end products,” said Yuen. “Bellamy’s is a very strong and internationally recognised brand.”
Bellamy’s shares surged as much as 56 percent to A$12.98 in Sydney, before pulling back to trade at A$12.89. Mengniu fell more than 4 percent in early Hong Kong trading, amid a
1.3 percent drop in the Hang Seng Index.
Mengniu has been eyeing overseas acquisitions as China’s appetite for milk and infant formula grows with its middle class. The company offered to buy out China Modern Dairy Holdings Ltd for HK$6.92 billion ($880 million) in 2017, gaining a plant in New Zealand, the world’s biggest exporter of dairy.
Mengniu’s chief rival, Inner Mongolia Yili Industrial Group Co, bought New Zealand’s Westland Co-operative Dairy Co in July.
The premium offered and a lack of specifics on how Mengniu will integrate Bellamy’s likely fuelled the Chinese company’s stock drop, said Lei Yang, an analyst at China Galaxy International Financial Holdings in Hong Kong.
But “strategically, it’s a good move” that will help Mengniu narrow its sales gap with Yili,
he said.