The a2 Milk Company (ASX:A2M) to purchase 75pc interest in Mataura Valley Milk

• The a2 Milk Company (A2M) is set to acquire a 75 per cent interest in Mataura Valley Milk (MVM) for NZ$268.5 million (roughly A$251.5 million)
• a2 officially entered binding agreements with the dairy nutrition business to expand its manufacturing capacity
• The deal will increase a2’s manufacturing capacity and access a newly-built facility to produce more nutritional products for China and other markets
• The companies have also agreed to produce mainly consumer packaged products from a blending and canning facility
• Getting this off the ground is set to cost an extra NZ$120 million (roughly A$112.4 million)
• MVM’s majority shareholder, China Animal Husbandry Group (CAHG), will retain a 25 per cent interest in the company
• Before the transaction can be completed, it must first get approval by the New Zealand Overseas Investment Office
• The a2 Milk Company’s shares are up 2.99 per cent and trading at $11.36  

The a2 Milk Company (A2M) has entered binding agreements to acquire a 75 per cent interest in dairy nutrition business, Mataura Valley Milk (MVM).

a2 first announced its plans to acquire a majority interest in the New Zealand-based company in August. While the company only confirmed discussions to explore a 75 per cent acquisition offer, a2 has been focused on expanding manufacturing capacity and relationships within the sector.

Based on an enterprise value of around NZ$385 million (roughly A$360.7 million), a2 will pay NZ$268.5 million (roughly A$251.5 million) for the acquisition.

The acquisition will be undertaken on a debt-free, cash-free basis and funded from the a2 Milk’s existing cash reserves.

The proposed acquisition will give a2 Milk the opportunity to participate in nutritional products manufacturing, provide supplier and geographic diversification, and strengthen relationships with key partners in China.

“We have worked closely with CAHG and MVM over recent months and have developed relationships with both teams that we are confident will provide a strong foundation for the business going forward,” CEO Geoff Babidge said.

Matuara Valley Milk’s majority shareholder, China Animal Husbandry Group (CAHG), will retain a 25 per cent interest in the company, alongside the a2 Milk Company.

a2 Milk Company will also welcome more nutritional products to complement its existing supply relationships that remain in the place with Synlait Milk and Fonterra Co-operative.

Furthermore, the acquisition presents a unique opportunity to acquire a newly-constructed and operational, world-class manufacturing facility in New Zealand to produce more infant nutrition products for China and other markets.

a2 and MVM have begun developing a plan to produce mainly consumer packaged nutritional products from MVM’s facility.

In order for this to happen, a blending and canning facility (plus associated infrastructure), will need to be established. This is set to cost an extra NZ$120 million (roughly A$112.4 million) in the first two to three years from the transaction’s completion.

Before the transaction can be completed, the New Zealand Overseas Investment Office will need to approve it. Settlement is expected to occur on May 31 2021.

The a2 Milk Company’s shares are up 2.99 per cent, trading at $11.36 per share at 10:16 am AEDT.