ATM - A2 Milk Corporation Limited

[Harrie]

i still think freedom,s block of shares are on the market....I think they want out

Yes I'm starting to think that myself. When they said they were not happy with the a2mc expansion plan what they were really saying is that they don't want to front up with the cash in a CR and would rather spend it on their own expansion program. Better to get a 100% bang for a buck investing in FF than 20c odd for the same dollar investing in a2mc. Deans offers an opportunity to FF to offload a2 shares, and deans through a2mc distribute a2 milk into China, the USA UK, and Deans product into China via a2mc. Why else would they be raising NZ$1.3bil in the USA. Paying NZ$1.00 per share only uses around 50% of that facility.

[Nasi Goreng]

I actually think that it will be a 4 party consortia, each party taking responsibility for their own territory/market. Freedom in Aus, Dean in U.S., JD in China, and who in the UK....Wiseman maybe? That makes the transaction affordable too. Roll on an announcement...if no bid is forthcoming I would like ATM to focus on the business and get the Cap Raise underway if that will accelerate the strategy.

That would be one giant cluster... mess.

[ziggy415]

Yes I'm starting to think that myself. When they said they were not happy with the a2mc expansion plan what they were really saying is that they don't want to front up with the cash in a CR and would rather spend it on their own expansion program. Better to get a 100% bang for a buck investing in FF than 20c odd for the same dollar investing in a2mc. Deans offers an opportunity to FF to offload a2 shares, and deans through a2mc distribute a2 milk into China, the USA UK, and Deans product into China via a2mc. Why else would they be raising NZ$1.3bil in the USA. Paying NZ$1.00 per share only uses around 50% of that facility.

Perich topping up to 20% via its holding of freedom seems a bit odd tho

[Harrie]

Perich topping up to 20% via its holding of freedom seems a bit odd tho

Well not really when they can flog them off at a higher price to Deans.

[NT001]

... Deans offers an opportunity to FF to offload a2 shares, and deans through a2mc distribute a2 milk into China, the USA UK, and Deans product into China via a2mc....

At this point Deans has little international experience, and is preoccupied with re-branding its product range for the US market rather than expanding offshore. I can see why Deans could be interested in taking over a2MC or taking a major stake in it in order to expand its range of products outside the dairying mainstream and with appeal to health-conscious US consumers. But actually it could do this via a deal with a2MC without taking it over.

a2MC's present strategy is to remain a small-staffed company that sticks solely to its own knitting. As its marketing chief Susan Massasso made clear in that interview in Marketing magazine posted on this thread yesterday, its mantra is "do one thing and do it well", for which it needs fewer than 40 employees and a marketing team of fewer than 10.

So it wouldn't be at all keen on marketing non-A2 milk into China to help out a US company. And even if Deans takes it over, it would strain marketing credibility for a company called a2 if it started flogging off milk other than A2 in China, UK or anywhere else. Maybe Fonterra would be happy to do that for them.

Harrie, you also ask (post 4437) why Perich would be upset at having to put money into a cap raise and why he doesn't like a2MC's strategy. FWIW, my guess is that he has his eyes fixed on China, not the US. Just recently he signed a 50-year alliance (which also includes FF) with Guangzhou-based Shenzhen JiaLiLe Food Company to supply dairy products for Chinese kids. And last year he signed a deal with New Hope (Chengdu) under which he and FF have to invest heavily in large-scale new joint venture dairy farms in Victoria to supply the Chinese partner. That's all going to tie up a lot of money and energy, and I think that's why he doesn't like Babidge focussing on the US and wanting more capital to speed things up there.

[Xerof]

NT, they would be after the IP, wouldn't they?

[Nasi Goreng]

NT, doesn't it depend on the way the products are marketed for whoever owns it.

If they don't get into all the unproven stuff, they can market it as the way A2 do now which is around easier digestion.

Some cars digest 98 better than 91. I know there is a whole load of science behind A2 but is it not ok to sell both?

[NT001]

NT, doesn't it depend on the way the products are marketed for whoever owns it? If they don't get into all the unproven stuff, they can market it as the way A2 do now which is around easier digestion.

They can do that right now but other issues are coming up, such as autism, schizophrenia and cot death, for which the scientific evidence is mounting to the point that it will become "proven". What you call the "unproven stuff" is not going to stay unproven, and it will then become an interesting marketing exercise for a company that sells A1 milk, having to say: "Well we know the A1 milk we're selling you increases the chances of autism and schizophrenia in your family, but hey, we can also sell you A2 milk at twice the price that doesn't have these nasty risks."

Doubters find it difficult to believed that in decades ahead, drinking A1 milk is likely to be seen as a bit like smoking. ("Oh yes we all used to do it because no one could absolutely prove the risk, but now we know better".) And the purveyors of A1 will have problems. Read Woodford's book. It's not just autism and schizophrenia, it's diabetes, heart disease and even cancer - anything that the body needs an unimpaired immune system to ward off.

NT, they would be after the IP, wouldn't they?

Well yes, largely, but why pay hundreds of millions for IP you don't really understand the implications of? That's what I'm worried may happen. Are the Chinese for instance just going to keep on producing cheap and nasty A1 milk for the masses and importing A2 by airfreight at huge prices for the wealthy, well-informed and health-conscious?

The purpose of the IP is not just to make money but to enable the establishment of A2 herds. But the Australian experience has shown farmers don't need to own the company to do that. The Chinese could start doing that right now by simply breeding from tested A2 bulls and testing their cows, gradually culling the non-pure-A2s.

[Harrie]

[QUOTE]

So it wouldn't be at all keen on marketing non-A2 milk into China to help out a US company. And even if Deans takes it over, it would strain marketing credibility for a company called a2 if it started flogging off milk other than A2 in China, UK or anywhere else. Maybe Fonterra would be happy to do that for them.

I didn't mean that Deans would use a2mc to distribute their milk into china but rather the myriad of other product they produce.
Having said that I do accept your point that a2mc's marketing manager wants to concentrate on one product and do that well, so using a2mc to help them with distributing other product of Deans into China is not really a goer.
So the big question remains, what do Deans intend to do with a2mc by getting involved with FF?

[NT001]

Freedom Foods, as a listed ASX company, has announced the details of a new alliance between itself, Perich, the Moxey farming family and New Hope (China).

http://www.asx.com.au/asxpdf/2015070...z0r3jv5lt8.pdf

This deal has actually been in the works and public knowledge for some months, as it was announced in April that the Perich and Moxey farming giants were creating a joint venture with New Hope. The new element now is that Freedom is also included, which was not the case originally.

The report in The Australian on this deal ties it in with the discussions about a takeover of a2MC, but there is not really any direct connection, and A2 is not mentioned in Freedom's announcement. Nevertheless, in Perich's mind (and the Perich family which controls Freedom is driving this whole merger) there will no doubt be plans to extend its tentacles to a2MC.

The story in The Australian makes clear the development of "greenfield" dairy farms is going to chew up a lot of effort and capital, by both Perich and Freedom. I think this supports my view that (a) Perich would rather see a2MC focussing on China than on the US, and (b) Freedom won't be wanting to lay out cash for much more of a2MC than its current 19% holding. Deans is not part of this little empire, but it'll be interesting to see if it does become involved.

The story in the Australian may be paywalled but I was able to pick it up on the open net. The guts of it follows:

Freedom Foods and the Perich family have formally cemented a new alliance with China’s New Hope Dairy Group as they continue negotiations regarding a potential purchase of a2 Milk. Under the terms of the alliance, the billionaire Perich family’s Leppington Pastoral Company will partner with New Hope, Freedom and Moxey Farms, one of Australia’s largest single-site dairy operations, in a consortium called Australian Fresh Milk Holdings.
Freedom revealed yesterday that upon completion, it would hold a strategic 10 per cent equity position in AFMH, with the balance held by Leppington Pastoral, Moxey and New Hope.
Freedom’s equity contribution will be about $7 million and AFMH will maintain a relatively conservative gearing structure. It is expected to inject around $80m into Moxey and other greenfield dairy sites.
Both Freedom Foods and New Hope Dairy will have priority access to any increases in milk production at Moxey Farm or greenfield sites acquired by the venture.
Moxey is a major supplier of milk to a2, the board of which met on Thursday night in London, but there was nothing to report on negotiations with Freedom and its bid partner, the US listed Dean Foods.