ATM - A2 Milk Corporation Limited

[Harrie]

Opens up a whole lot of possibilities wrt a2mc.
FF wants to concentrate on China, and increasing the development of more supply, which will suck up a fair bit of capital. Looks like Dean's alone could be doing the acquiring of a2mc and they have plenty of capacity now to do it with substantial funding lines in place. I think that Dean's will see increasing profitability in a2mc in both the Asian and USA market so happy to go along for the ride.
Here is an issue though:
what is to stop freedom, if exiting from a2mc shares marketing something like " Moxley a1 free milk" in China and knocking a2 milk out of the picture. I am presuming that supply agreements between Moxley and a2mc for a2 milk are reviewable?

[NT001]

... What is to stop Freedom ... marketing something like "Moxey a1-free milk" in China and knocking a2 milk out of the picture.?

They could possibly try, although I doubt if they would resort to such tactics. One problem with launching an "a1-free" label is you have to explain to consumers what a1 is and what's wrong with it. Not easy, and it puts you at odds with marketers of milk containing a1 (most milk), which might well include some of FF's and Perich's and New Hope's own products. And in some jurisdictions it's illegal or very dicey to denigrate the opposition. That's a constraint a2MC itself faces and will face increasingly as the science becomes clearer.

Any rival wanting to compete with a2 milk would probably do better by inventing a new brand that steers clear of the A1/A2 debate up-front and just claims to be more digestible and flavoursome than other milks. I'm not an IP expert, but my guess is that in fine print it could probably then explain that it is from A2 cows.

[NT001]

Am I the only one awake and not watching the footy?

Anyway here we go again. This item from the Washington Post isn't about ATM but provides an excellent overview of where the US dairy industry is at, and includes references to the NZ situation, California and Deans.

http://www.stuff.co.nz/business/farm...elm-us-dairies

[NZSilver]

Nice little Summary

https://keithwoodford.wordpress.com/...-leap-forward/

[NT001]

Nice little Summary

https://keithwoodford.wordpress.com/...-leap-forward/

Yes, an interesting overview. The paragraph near the end stating that Fonterra doesn't need to buy ATM because it already owns 50% of one of the key patents (with A2 owning the other half) seems to me somewhat beside the point.

There are two patents relating to methods of identifying the A1-A2 status of cows (and bulls). By far the most practical and commercially valuable patent covers the method that involves the DNA-testing of a few hairs from a cow's tail, and that patent belongs fully to a2MC. The other one involves testing the milk produced by each cow, and the patent for that is jointly held by a2MC and Fonterra. Some years ago Fonterra unsuccessfully sued for shared ownership of the tail-hair test patent as well, but its claim was thrown out.

Fonterra (or more precisely the former Dairy Research Institute) played a key role in the early A1-A2 research and acquired a 50% stake in the cows-milk test patent based on the assertion that A1 carries a risk of triggering type 2 diabetes. Yet it has not shown any interest in exploiting that patent, and in fact has tried, rather unconvincingly, to backtrack from the health claim underlying it. Moreover, that patent has much less utility and value than the hair-tail test patent belonging to a2MC.

[Harrie]

If the bid fails, then a complicating factor is that ATM relies on the Moxey and Perich dairy herds for much of its Australian supply of milk. It is unknown as to the details of their current supply contracts with ATM, and whether the new AFMH entity will be bound by such contracts. Without this milk supply, the Australian arm of ATM is in big trouble

Pretty well much what I said in my last post. Given that Babidge and the Perich boys have reportedly had some differences between them could result in a2mc being cut out of the picture after Freedom flogs off its a2mc shares to Deans and goes and remarkets a2 milk as something like "moxey a1 free milk" (obviously can't market the milk under the a2 brand)
The supplier of a2 milk holds all the cards. Not an impossible feat to rebrand and educate the public but a big call.

Not saying this will happen but it is a risk IMO, especially if the Perich boys fall out with a2mc, or they think that they can go it alone and make profits that would normally be associated with a2 especially in China and SE Asia. The patents for a2 testing could be a factor that could stop it but I'm sure there are other ways of testing that could be performed without breaching patent rights.

Here is an issue though:
what is to stop freedom, if exiting from a2mc shares marketing something like " Moxley a1 free milk" in China and knocking a2 milk out of the picture. I am presuming that supply agreements between Moxley and a2mc for a2 milk are reviewable?

[NT001]

I agree the situation is potentially fraught, Harrie. But there's so much we simply don't know, and with at least six actors in the mix (ATM, FF, Perich-Moxey, New Hope, Liu and Deans) the permutations are almost endless. This speculation is fascinating but very likely futile as the situation changes almost daily. There may well be other actors waiting to jump in, whom we haven't even heard about as yet.

I think it very unlikely the takeover bid will fall over - it's just a matter of whose takeover. In one potential scenario, a2MC could end up being absorbed into AFMH, a creature of Perich, in which case the terms of present supply contracts would be immaterial. My guess is that the Perich family would not let Freedom flog off its a2MC stake to Deans - it would want control of a2MC's IP and would prefer to keep the rights to the a2 label. It could do this at relatively little cost if New Hope and possibly Deans shared the tab for a joint takeover bid.

After all, the consortium would only need 51% and it's already got 20% (that we know of). Even at NZ$1 a share, another 31% would only cost around NZ$200m. Incidentally, Freedom's stake in a2MC is currently worth around $85m Australian but is valued at only A$10m on Freedom's books, due to a somewhat bizarrely explained "book keeping" change implemented last year. Not sure how that might affect the equation.

Another interesting aspect to all this is that Perich is a part owner of the a2MC processing plant at Smeaton Grange in Sydney. Not sure who calls the shots there.

But again, this is all speculation, probably idle. And let's remember, Babidge and two of his top executives are all out of the Freedom stable, and for all we know they could be having reasonably amicable talks right now.

[Harrie]

Hope you are right NT because if a takeover is definitely on the cards, the upside looks pretty damm attractive.

[sb9]

Another 4Ml transacted, looks like a transfer. What does your calculations say see weed...how many we're upto now?

[see weed]

Another 4Ml transacted, looks like a transfer. What does your calculations say see weed...how many we're upto now?

Milford just sold 14.8 mill a couple days ago.