Chinese Dairy giant China Mengniu Dairy Company will be a massive test for the Morrison Government’s attitude to foreign ownership.
Based in Tasmania, Bellamy’s Australia (ASX: BAL) has entered into an agreement to be taken over by the Hong Kong listed China Mengniu, which has a market capitalisation of $25 billion and is partly owned by Chinese Government company Cofco.
Any deal will need to be approved by Bellamy’s shareholders, the NSW Supreme Court and the Foreign Investment Review Board (FIRB).
Bellamy’s still waiting for approval to sell directly in China
It is possible the takeover could also flush out further suitors for Bellamy’s, which has been waiting on a crucial Chinese Government approval to sell its organic infant formula in retail stores for more than 20 months.
That approval delay led to Bellamy’s dramatically downgrading its sales and profits forecast, with sales at one stage predicted to hit $500 million a year by 2021-22.
Foreign investment and particularly the purchase of agricultural land and assets has been highly controversial in Australia, with intense scrutiny on the FIRB and the government.
That scrutiny intensified after the $280 million purchase of the dairy business Van Diemen’s Land Company in 2016 by Chinese businessman Xianfeng Lu after the deal was approved by the FIRB.
Concerns agriculture being taken over by foreigners
Already Tasmanian independent federal MP Andrew Wilkie has already said that the FIRB will need to undertake “a very stringent assessment of whether or not the public interest is served by the (Bellamy’s) sale going through”.
“Many Australians will be uneasy with this sale for all sorts of reasons, and it’s important that the FIRB be seen to act quickly and competently and be prepared to stop it if need be,” he said.
If the deal is approved, Bellamy’s holders will be paid $13.25 per share, a 59% premium to last week’s closing price of $8.32.
That payment would be made up of $12.65 a share paid by Mengniu, and a $0.60 per share fully franked special dividend to be paid by Bellamy’s.
If approved, the deal is likely to be completed by the end of this year.
Deal not related to getting Chinese licence
Bellamy’s chief executive Andrew Cohen has said that the $1.5 billion offer from Mengniu would not “change the likelihood” of Bellamy’s receiving Chinese approval.
He said he was confident Bellamy’s would get Chinese approval no matter which way the takeover went, with many companies including large Chinese businesses also waiting on licences.
Shares in Bellamy’s soared 54.9% on the takeover news to close at $12.89 on Monday.
Bellamy’s directors have unanimously backed the deal and have urged shareholders to support it.
In its recent full year results, Bellamy’s told investors the company’s full year profit had almost halved to $21.7 million.