a2 Milk Company grows infant nutrition sector with US$176m Mataura Valley Milk deal

25 Aug 2020 --- As part of its goals to grow its infant nutrition business, a2 Milk Company (a2MC) has made a non-binding indicative offer to acquire 75 percent of New Zealand dairy nutrition business Mataura Valley Milk (MVM). The offer up for consideration is approximately NZ$270 million (US$176 million) based on an enterprise value of circa NZ$385 million (US$252 million). The company produces milk with only A2 protein, which some research has suggested may help some people avoid stomach discomfort.

“Due to the increasing scale of our infant nutrition business, we have been assessing participation in manufacturing capacity and capability. The potential investment in Mataura Valley Milk’s recently commissioned facility, alongside China Animal Husbandry Group, aligns with this strategic objective as we look to complement and build upon our current strategic relationships with Synlait Milk and Fonterra Co-operative Group, which remain in place,” says a2MC’s CEO, Geoff Babidge.

“Our intention would be to invest further to establish blending and canning capacity at Mataura’s facility to support the establishment of a fully integrated manufacturing plant for infant nutrition,” Babidge continues.

Further collaboration with MVM
a2MC is also exploring options to participate in manufacturing at MVM’s facility in Southland, New Zealand. The discussions with MVM are ongoing and remain incomplete, with any potential transaction subject to further due diligence, negotiation of definitive agreements, as well as requisite regulatory and third party approvals.a2MC produces dairy milk containing only A2 protein, and no A1 protein, which is found in standard milk. 

MVM has also agreed to provide a2MC a period of exclusivity to conduct confirmatory due diligence and negotiate definitive transaction documentation. Any transaction that results from the current discussions is expected to be settled towards the end of a2MC’s FY21 year and would be funded entirely from existing cash reserves, the companies note.

The exclusivity arrangements are supported by MVM’s current majority shareholder, China Animal Husbandry Group (CAHG), which would retain a 24.9 percent interest in MVM alongside a2MC under the terms proposed. CAHG is a wholly owned subsidiary of China National Agriculture Development Group, which is also the parent company of a2MC’s strategic partner in China, CSFA Holdings Shanghai.

A2 protein to avoid stomach discomfort
a2MC produces dairy milk containing only A2 protein, and no A1 protein, which is found in standard milk. Blake Waltrip, US CEO of a2MC, previously spoke to NutritionInsight, explaining that through a safe genetic test, the company identifies cows that only produce the A2 protein. 

“[The trait] is like having brown eyes versus blue eyes. We segregate those cows to get our A2 Milk,” details Waltrip.

He goes on to add that the company is focusing on building awareness and trial with consumers in the grocery and mass channels through education of the A2 protein. Notably, products without A1 proteins have suddenly burst onto the scene. Last month, Re:THINK Ice Cream relaunched its desserts to include both collagen and lactose-free A2/A2 dairy. Meanwhile, Nestlé-owned Gerber recently launched Good Start A2 Infant Formula and Good Start A2 Toddler Drink in the US.

A year of financial growth
a2MC recently announced that its fiscal (FY)20 full year status reflected strong financial results. The company says it has made significant gains in revenue and earnings, with strong performances in all key product segments, and across all core markets.

“Our performance was robust throughout the year and we demonstrated significant resilience in the second half managing the business in the face of the COVID-19 global pandemic. Through these unprecedented times, we have been fortunate to continue experiencing strengthening levels of consumer demand and worked closely with our strategic partners and customers to ensure supply chains remained open and consumer needs continued to be met,” the report mentions.

a2MC estimates that COVID-19 had a modest positive impact on revenue and earnings for the year. Additionally, the business was favorably impacted by foreign exchange movements. Its overall result reflects the continued growth in our infant nutrition segment with sales totaling NZ$1.42 billion (US$928 million) for the period – an increase of 33.8 percent on the prior corresponding period. 

“In line with our strategy, our growth in China label infant nutrition products was significant, with sales effectively doubling. We achieved this while also continuing to achieve growth in our English label infant nutrition products with growth of 21 percent. Our revenue in the third quarter was well above expectations due to the impact of changes in consumer purchase behavior arising from the COVID-19 situation. This included an increase in pantry stocking particularly via online and reseller channels,” the company states.

The company also notes that it achieved solid growth in its liquid milk businesses in Australia and the US, with sales up 29 percent. Liquid milk sales in Australia were up 14 percent, while sales in the US almost doubled during the year.

By Kristiana Lalou