Federal Treasurer Josh Frydenberg has told Food & Drink Business he won't comment on the proposed takeover of Bellamy's Australia by China's Mengniu Dairy Company. His comments follow Tasmanian Senator Peter Whish-Wilson calling on the Minister to investigate the proposal. 

On Monday (16 September), Bellamy's announced it has entered a Scheme Implementation Deed which will see China's Mengniu Dairy Company acquire 100 per cent of Bellamy's issued shares (Food & Drink Business, 16 September 2019).

The Bellamy's Board unanimously recommended shareholders accept the offer of $13.25 cash per share, $12.65 cash per share from Mengniu and 60 cents per share fully franked special dividend paid by Bellamy's. The cash amount values Bellamy's equity at approximately $1.5 billion. It represents an enterprise value 30 times reported normalised FY19 EBITDA.

Frydenberg told Food & Drink Business that the government does not comment on specific foreign investment matters. 

“Foreign investment is an important contributor to Australia’s economy and standard of living. Australia maintains a non-discriminatory, case-by-case approach to considering foreign investment proposals,” Frydenberg said. 

Meanwhile, Greens Senator Peter Whish-Wilson wrote to the Treasurer and Trade Minister Simon Birmingham saying the governent must examine whether the Mengniu bid complied with foreign acquisitions and takeover laws.

Whish-Wilson pointed out Bellamy's had not been able to get its organic infant formula into China's retail outlets as it had been waiting on regulatory approval since 2017.

He called on the ministers to examine, or direct the Foreign Investment Review Board (FIRB) to examine, a range of questions including: "Whether any actions by the Chinese Government, including withholding import approvals, have suppressed Bellamy's share price ahead of a takeover offer by Mengniu.

"Whether any actions by the Chinese Goverment, including withholding import approvals, constitute a conflict of interest and could reasonably be seen to be market manipulation.

"Whether any activity by the Chinese Government in relation to Bellamy's is inconsistent with the national interest test, particularly the fair and open operation of Australia's market based system.

"What precedents exist for a takeover bid by a foreign copmany in which the nation state is thelargest shareholder, and where regulatory decisions by that nation state have had a material impact on the target company's market valuation."

Whish-Wilson told Food & Drink Beverage that it was a "sensitive and significant matter of public interest".

"I want strong FIRB laws that can under write confidence in approvals. I have a track record of raising FIRB issues around foreign investment, and co-initiated a parliamentary inquiry into FIRB with Senator Xenophon. I also understand international finance and equity capital markets. 

"While there is no evidence of market manipulation, this is what appears to have happened and I expect the Treasurer to look at this contingency in detail," the Senator said. 

It was imperative the government ensure the integrity of Australia's market-based system and that investments by Australian shareholders are not underminded by foreign interests "seeking to manipulate Australia's market-based system", he said. 

Whish-Wilson raised questions about the China-Australia Free Trade Agreement (ChAFTA) saying it was "meant to establish fair and equal market access, unless otherwise agreed to. I am writing to request that you examine whether the actions by the Chinese Government in withholding import approvals for Bellamy's is in accord with ChAFTA."

He also asked what representations did DFAT make to State Administration of Markets Regulations (SAMR), if any, on behalf of Bellamy's regarding the obtaining of import licences.

Bellamy's CEO - Mengniu an "ideal partner" 

Bellamy’s CEO Andrew Cohen said: “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.

“This transaction can further deliver on our founder’s original vision of a truly iconic Australian brand and ‘A Pure Start to Life’ for the world. Our employees, our trade partners and local organic manufacturers will continue to grow and thrive with the success of our business.”

Mengniu’s CEO Jeffrey, Minfang Lu said: “Bellamy’s is a leading Australian brand with a proud Tasmanian heritage and track record of supplying high quality organic products to Australian mums and dads. This leading organic brand position and Bellamy’s local operation and supply-chain are critical to Mengniu.”

China Mengniu Dairy Company operates as a holding company which, through its subsidiaries, manufactures and distributes dairy products in China. It offers products including milk, ice cream, and milk powder.

In a December 2017 interview with McKinsey's, Lu said, "We collect four million tons of milk each year. We sell 12 billion packs of product to our consumer, and we have 58 manufacturing sites, more than 1,000 manufacturing lines, more than 2,000 SKUs."

Rough financial year for Bellamy's with profits halved

Bellamy’s FY19 was a “challenging period” due to regulatory changes, a lower birth rate and increased competition for Chinese demand, the company said yesterday when it announced its results for the 2019 financial year.

The challenges saw Bellamy’s full-year profit almost halve to $21.7 million in FY19, down from $42.8 million in FY18. Net revenue was $266 million and normalised EBITDA was $47 million (17.6 per cent) (Food & Drink Business, 28 August 2019

 CEO Andrew Cohen said the company would defer its medium-term target of $500 million revenue by 2021 due to the ongoing regulations process. 

a2 says Chinese regulator decisions "logical and considered" 

Media reports today (18 September) quote a2 Milk Company CEO Jayne Hrdlicka dismissing suggestions Chinese authorities delayed approval Bellamy's licence to drive down its share price.

The AFR reported Hrdlicka Ms Hrdlicka and a2 Milk's senior management team were hosting 80 investors and analysts in Shanghai over two days this week to outline their strategy for the China market.

"We think all of the moves that have been taken by the regulator are logical and considered moves that seek to build a category consumers can rely on and trust".


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