Bellamy’s shares still up 50% even as conspiracy theories circle

A generous A$1.5B takeover bid from Chinese-based Mengniu Dairy may just have created more questions than answers, as some in Australia’s government scrutinise the proposed deal.

Bellamy's (ASX: BAL) share price in focus Source: Bloomberg

Bellamy’s share price: a wild, wild ride

When Bellamy's (ASX: BAL) – the organic infant formula company listed on the ASX in 2014, its stock traded for a little over one dollar.

The company quickly became a market darling though, riding the China infant formula boom to a high of A$22 per share by March 2018. A board spill in 2017 was quickly forgotten by investors, as macro trends remained favourable.

This bullish run-up was backed by the notion that Bellamy’s would eventually receive the rubber-stamp from China’s State Administration of Markets Regulations (SAMR) to sell its infant formula in China’s all-important retail stores.

That approval never came – and indeed, remains pending.

Investors grew impatient as Bellamy’s growth story showed signs of fraying and theories that the company would never actually receive the required regulatory approval to sell its products in China have now come into focus.

Reflected in that uncertainty, by December 2018 the company’s stock traded hands for a low of just A$6.81 per share – a far cry from its +A$22 per share peak, less than a year prior.

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An unlikely life-line emerges

Enter Mengniu, the Hong-Kong listed, A$24.6 billion Chinese dairy giant.

On Monday it was revealed that Mengniu has put forward an offer to acquire 100% of Bellamy’s issued stock, in a cash plus dividend deal.

Under the deal (scheme) shareholders would receive a generous A$12.65 per share from Mengniu. In addition to that, shareholders would receive a A$0.60 special dividend paid by Bellamy’s.

By any standard, this represents an attractive offer: valuing the company at approximately A$1.5 billion and representing a 59% share price premium, from before the news broke.

Unsurprisingly, Bellamy's (ASX: BAL) shares were bid close to the suggested takeover price: rising in excess of 50% on Monday as trading commenced.

On Friday, the stock remained around those levels.

Yet as with all things, the wild ride may still have some legs left.

What ifs remain

In the company’s media release a number of yet-to-be-met conditions were outlined, including:

Approval from Bellamy's shareholders, approval from 'the Court and the Australian Foreign Investment Review Board (FIRB), there being no material adverse change or prescribed occurrence, and an Independent Expert's Report concluding that the [buyout] is in the best interests of Bellamy's shareholders.’

Bellamy’s board is of the opinion that accepting this deal is the best course of action for shareholders.

Though such conditions haven’t stopped retail optimism, it has certainly caused some wild theories to appear.

Share price manipulation?

While it may very well be the case that the A$1.5 billion Mengniu offer is in the ‘best interests of shareholders’, the proposed deal has already attracted scrutiny from the media and government officials.

The Greens Senator, Peter Whish-Wilson for example, has questioned whether Bellamy’s protracted share price struggles could have at all have been influenced by China’s government.

Here, Mr Whish-Wilson has asked the Australian government to examine:

‘Whether any actions by the Chinese government, including withholding import approvals, constitute a conflict of interest and could reasonably be seen to be market manipulation.’

That is, whether potential actions from the Chinese goverment may have:

‘Have suppressed Bellamy's share price ahead of a takeover offer by Mengniu.’

a2 Milk's (ASX: A2M) esteemed CEO Jayne Hrdlicka seems to think such conspiratorial suggestions have little merit.

Speaking to the AFR, she recently commented that:

‘We think all of the moves that have been taken by the regulator are logical and considered moves that seek to build a category consumers can rely on and trust.’

Mind you, a2 Milk never struggled receiving SAMR approval in the way Bellamy’s seemingly has.


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