ATM - A2 Milk Corporation Limited

[Snoopy]

Still not sure how to best model the China growth plan? I am now thinking that China is more like a lucrative branch of Australasia as all the product is imported from NZ/Oz.

So I think the ATM growth model is more like:

(Oz/NZ/China) funds (UK) funds (USA)

Of course 'conquering the UK' seems to be mainly happening in the lower right hand corner of England including London. And conquering the USA might initially translate to conquering just California. So I am picking that UK will have to fund growth over the rest of the UK as well as the USA. Or maybe Australian growth covers the expansion into the rest of the UK? That is the money that Australia generates that isn't needed to develop China! The problem is $20m over three years for the USA is big money for ATM, but not big money for the task they want to do. All the future cashflow looks to be on a knife edge. Keeps me on the sidelines not buying. I wonder when the necessary upcoming cash issue will happen?

When ATM was 70c, the institutions balked at paying more than 50c for new shares. So with ATM arround 55c, I think 40c is looking likely. But wouldn't that leave you as a fund manager looking red faced if you paid 50c for the last cash issue? Perhaps that is why those institutions don't want to do it?

Big cash being generated in Australia? I guess so, but 'big' only in relation to ATM shareholder funds, not the road map that ATM have drawn out ahead of them.

I see that finally the much anticipated (by me only) cash issue has reared its ugly head, exactly as I predicted.

From the 22nd June announcement.
"the Company has recently been contemplating, and was in advanced stages of planning for, an equity raising."

Still ever since the Oz market listing, they have been softening up shareholders for this moment by subtley changing the wording of their press releases even if the most enthusiastic shareholders didn't want to get that message.

By combining that announcement will the second announcement that two parties are interested in taking a stake, ATM management have managed to push up the share price. This is exactly what needs to happen if they want to get another cash issue away at a price acceptable to those who have subscribed before. If they could get the cash issue away at 50c that would be a good result for the company, while those who had previously subscribed at 50c in the last cash issue wouldn't be too offended.

'Enthusiasts' have been going on about who the second party of interest (the first being Freedom foods) might be. The press release says that two associated parties are looking at making one offer. This means the second party is very likely Arrowvest, the dairying business vehicle of the Perich family which owns 60% of Freedom Foods.

The idea that another party like New Hope is involved would only be seriously contemplated by those who didn't bother to read the press release properly.

The potential offer as yet doesn't exist and has been brought into the open before any bid was on the table.

"The parties have requested confidentiality, and stated that their expression of interest is indicative and non-binding and may can be withdrawn if it ceases to be confidential."

Technically you could argue that the offer is now dead, because ATM have breached confidentiality. However, now that Freedom have outed themselves I think we can conclude that the due diligence will proceed even if the offer does not.

The takeover code requires an offer for all shares should one block of associated interests want more than a 20% shareholding. Everyone here is jumping on the idea that Freedom/Arrowvest may want to take over the whole company, but they may not. They may make a lowball offer to ensure that the majority of outstanding shareholders do not accept. That way ATM would remain listed and Freedom/Arrowvest could just buy a 51% controlling stake.

SNOOPY

[Ginger_steps_]

So what do you all think will happen to the SP if the take-over doesn't eventuate, and is replaced with the cash issue? Sharp drop back to 58c?

[Ginger_steps_]

So what do you all think will happen to the SP if the take-over doesn't eventuate, and is replaced with the cash issue? Sharp drop back to 58c?

[Tsuba]

Ask Snoopy. He knows it all.

[Lola]

So what do you all think will happen to the SP if the take-over doesn't eventuate, and is replaced with the cash issue? Sharp drop back to 58c?

What I would think is that it would be a brilliantly disguised effort at price manipulation. But I don't think that is the case at all, and we will see ATM get the cash it needs from an off shore source by way of new shares plus a part take out to shareholders and maybe a scrip offer from Freedom just to keep the minorities in the long term game, which would be great.

In other words a cash plus scrip bid but from two parties acting together. Just my guess.

[Snoopy]

So what do you all think will happen to the SP if the take-over doesn't eventuate, and is replaced with the cash issue? Sharp drop back to 58c?

It all depends how badly ATM needs the cash. Their cash balance IMO was already on track to expire before they announced the court case with the ABC. So ATM really need to do a placement or a more general cash issue to all shareholders in a timeframe measued in weeks or months. If the cash issue is a significant one, then the share price will drop to near the cash issue price (I'm guessing 50c). But if it is a smaller cash issue, then the share price might hold near current levels. It does seem that Freedom at the very least will be taking up their share of any cash issue.

If there is a separate share issue granted to Freedom, then that takes the pressure of the share price with one hand. But then that increases the dilution of existing shareholders share of the business going forwards. That in turn means existing shareholders shares are worth less if the business plan going forwards hasn't changed.

Whatever happens it looks loike managment are doing the right things. 'Pump and place' is probably the best thing for the company as a whole going forwards. It might not be the best thing for existing shareholders though!

SNOOPY

[Snoopy]

If its not New Hope I'll be very surprised - Perich and New Hope have been in bed with each other for a while.

The second party could be New Hope. But if the two parties contemplating an offer are "New Hope/Freedom Foods", then the second party can't be Arrowvest. I am not sure you can dissociate Arrowvest from Freedom Foods, because we know that Arrowvest owns 60% of Freedom Foods.

OTOH New Hope was 100% Chinese government controlled last time I looked. So while Perich and New Hope may have had business dealings in the past, I don't believe you can say that Perich and New Hope have any cross shareholding arrangement, as the phrase 'in bed with each other' might imply.

SNOOPY

Edit: Have just read the letter from Freedom Foods, which mentions an 'unnamed international dairy company'. I guess Arrowvest is an international dairy company through their direct investment in ATM. But why would Freedom foods not name them as the second party? Perhaps that second party is indeed someone quite unassociated?

It is interesting the different spin put on the respective announcements by ATM and Freedom Foods. Why would the second party choose to remain in the background? Could it be Fronterra, who have different rules on informing the co-operative members, compared to a listed company with shareholders?
Or is the fact that no such offer for ATM shares yet exists enough reason not to inform shareholders of whatever the second company is?

[gv1]

Ah well that's all solved then. No need to worry about doing due diligence if you are planning a takeover. Just pay the highest price paid during last years speculative bubble and all existing shareholders will be happy!

SNOOPY

Soo whats your take snoopy.

[Snoopy]

Soo whats your take snoopy.

The consortium will do due diligence, then make an offer based on that. The historical share price will be largely irrelevant.

SNOOPY

[Snoopy]

Not sure what part of the following you failed to understand Snoopy?

Two of Australia's biggest dairy farming families have formed a dairy consortium backed by Chinese investment. Moxey Farms, in central-west New South Wales, has entered into an agreement with Leppington Pastoral Company, which forms part of the Australian Fresh Milk Holdings consortium. The deal develops a four way partnership between the Moxey and Perich families, Chinese private company New Hope Dairy Holdings and ASX listed food processing company Freedom Foods.

Ah OK, you have more information. Thanks KW.

It looks like the implied two consortium bid:

"a consortium comprising Freedom Foods and an unnamed leading International liquid dairy milk Company."

is actually a four consortium bid with the Australian interests grouped as one entity and the Chinese interests grouped as another.

New Hope is masquerading as a private company, but things were pretty much centrally controlled in 1982 when it started. I also notice that under 'industrial structure' on the New Hope website there is following quote:

"NHG is highly evaluated as the successful enterprise for overseas investment both by Chinese government and local governments overseas."

(refer to http://www.newhopegroup.com/EN/Busin...?CategoryID=10)

I think New Hope is still effectively a Chinese Government investment vehicle, despite the image that those non-Chinese faces smiling back at you from the website are trying to give you!

SNOOPY