ATM - A2 Milk Corporation Limited

[klid]

I saw a question on Who Wants to be a millonaire about A2 milk. It was an easy question for like $100 or $200 or something.
I thought of this company at the time, obviously, and I knew the answer, GO A2MC.

[Harrie]

Very comforting NT, thanks for the IP breakdown. I think that appears to be the way a2mc has structured the patents over the next 20 years. True you maybe able to wriggle thru some of them just to be caught by another.
Talking to a insto the other day who had previously invested in A2mc but had also raised the IP question. I wonder how far it was investigated. I am happy to take Babbidges interpretation of the IP question though, he should know as well as anyone. The insto did mention how well they respected Babbidges passion and drive. All good as far as I am concerned.

[Joshuatree]

Perpetual has increased its stake from 5.08% to 6.14% on the 7th Aug .ASX announcement

[NT001]

Perpetual has increased its stake from 5.08% to 6.14% on the 7th Aug .ASX announcement

Do we know whether it is investing on its own behalf or might it be on behalf of someone else who wants to avoid publicity at this stage?

[kiwi_on_OE]

That wording does suggest a potential competitor might be able to wriggle through cracks here and there in a2MC's IP, but it would continue to run into legal constraints on IP issues overall.

They'll be hoping for TPP to be agreed and that everyone agrees to an increase in the length of patents.

[NT001]

The “expression of interest” in taking over a2MC by Freedom Foods, the Perich family and America’s biggest milk company, Dean Foods, is back in the news, although only tangentially.

News from the US overnight is that Dean Foods’ chairman, Tom Davis, has suddenly resigned with immediate effect as regulators launch an investigation into allegations of insider trading. Questions have arisen as to whether this might affect Dean Foods’ plans to take part in the proposed a2MC takeover, but a company spokesman has indicated it won’t.

http://www.smh.com.au/business/a2-milks-us-suitor-target-of-sec-insider-trading-probe-20150811-giwt85.html

Interestingly, a story on the Dean Foods problem in today’s newspaper The Australian says the Perich family, who were earlier reported to be pushing the takeover idea because of doubts about a2MC’s strategy of launching big-time into the US market, are now happier following the recent update issued by a2MC’s CEO, Geoff Babidge.

http://www.theaustralian.com.au/busi...-1227478533957

The last two paragraphs are particularly interesting because when Babidge issued his update, the immediate reaction by the takeover proposers was said to be that they were not impressed. There seems to have been a change of heart since then, which also ties in with comments by Babidge in statements to the NZX over the past couple of days.

It will be recalled that the parties to the takeover proposal, especially Perich, insisted that a2MC postpone any plans for an increase in capital. But now, the company is activating a decision made by its board last April to award a total of 15 million options and 1.6 million performance rights to acquire ordinary shares to certain members of the company's senior management team under its incentive scheme.

Babidge this week told the NZX the company had been delayed in finalising the grant “due to recent events”. This appears to mean the conditions attached to the takeover proposal have been relaxed. Does this possibly mean the proposal itself is running out of gas? We aren't hearing much about it now. It wasn't a formal takeover offer. Was it perhaps just a device to push the SP up, as some have suggested?

[sb9]

Thanks NT001 for sharing that, very interesting read that is.

[Harrie]

The offer has been rejected NT so they are not under any constraints which existed while the proposal was "live". That does not mean that another offer under different constraints can't be made by the same or different parties.
Babbage has said that there are other interested parties in the wings however until something is formalized A2mc can do what they want and are obviously doing just that. I don't see what they have announced as much of an issue really. About 2% of the shares and at a price of 63c at expiry. Staff still have to front with large amounts of cash and it sets a bottom to the price. No company wants to issue share options to staff as part of a bonus scheme at an excercise price which is greater than the expected share price at expiry.

[NT001]

The offer has been rejected NT so they are not under any constraints which existed while the proposal was "live". That does not mean that another offer under different constraints can't be made by the same or different parties...
.

You're absolutely correct Harrie, a2MC is no longer bound by any constraint on increasing the company's capital as demanded by those behind the "expression of interest". In fact it never was really, because it was only a proposition, not a formal offer.

But Babidge has said the parties are still open to continued discussions, although the proposers have said they're in no hurry to come up with an improved proposal, and things have gone very quiet. As a former top executive of Freedom Foods himself and a longtime close associate of the Perich family, I believe Babidge would want to stay on good terms with those behind the initial takeover proposal even though the board has rejected it. That's why I believe he wouldn't have gone ahead with the option allocation at this point in time if he didn't have approval from them to do so. There was no need to push it through right now.

To that extent I see it as indicating a change in position by Perich/FF, and this ties in with what The Australian has reported.

I see the report in The Australian has now been paywalled, so here are the two paragraphs I referred to in post 4470.

"It is believed the Perich family, Freedom’s major shareholder, has recently become more comfortable with a2’s strategy following a trading update when the group revealed earnings before interest, tax, depreciation and amortisation was forecast to triple to $NZ12 million ($10.6m) in 2016, slightly above consensus forecasts.


"The Perich family had previously been concerned about a2’s ability to finance and execute its US plans without the support of a deep-pocketed partner."

This is significant, and in my view may indicate the proposed takeover is now a dead duck - if it ever was really alive and flying. The publicised proposal may have achieved its purpose by setting a new benchmark value for a2MC shares somewhere in the NZ80c area as compared with less than 50c previously. Just guessing.

[Harrie]

I don't think that the expression of interest did any harm in fact it prompted the market into making further investigations of its fundamentals and proposition. Without it I doubt whether you would see interest being expressed as much as it is by money managers and in particular Perpetual.
I still suspect that a bit of premium is built into the current price on the prospect of "other interested parties" but essentially most of the price is supported by fundamentals and the expectation of an increasing top line growth in target markets.