This was published 8 years ago
Insider trading probe into a2 Milk suitor Dean Foods derails takeover plans
By Jared Lynch
An insider trading investigation into a2 Milk suitor, Dean Foods, is believed to have derailed the US dairy giant's potential takeover of the trans-Tasman milk company.
Dean lobbed an expression of interest into a2 with Australian breakfast cereal and snack company Freedom Foods in June.
A2 Milk Company chief executive Geoff Babidge said the company had fielded enquiries from other suitors.Credit: Louise Kennerley
But talks have stalled between all parties, who have not spoken in the month since a2's board rejected the offer.
A2's shares dived as much as 12.4 per cent to 64.5¢ on Thursday after it posted a 40 per cent surge in annual revenue, thanks to strong growth in infant formula. However, the company reported a flattening share in Australia's white milk market, raising concern among some analysts and investors.
Doubts have emerged about Dean's commitment to the proposed takeover after the US regulator launched an insider trading investigation – reportedly involving golfer Phil Mickelson and professional sports gambler William T. Walters – into the company.
Dean's chief executive Gregg Tanner has also refused to explain the sudden resignation of the company's chairman Tom C. Davis earlier this month.
A spokeswoman for Freedom, which is also a2's biggest shareholder, declined to comment on the potential takeover. But it is understood that Freedom, which the billionaire Perich family controls, doesn't have the financial muscle to pursue a takeover on its own.
Freedom's management is also believed to be far from satisfied about a2's financial performance, describing a trading update released last month as underwhelming, despite it being broadly inline with analysts' expectations.
A2 Milk chief executive Geoff Babidge said the company had fielded enquiries from other suitors, which he has declined to reveal.
It comes as a2 Milk posted a 40 per cent surge in revenue to $NZ155 million ($139.3 million) in the 12 months to June 30, thanks to strong demand for its Platinum-branded infant formula in Australia and China.
"Obviously the trading update and this very positive release would further underpin the level of interest from others," Mr Babidge said.
Infant formula generated $41.7 million in revenue, a 445 per cent increase on the 2014 financial year.
ASX listing costs
The "exceptional growth", however, led to a net loss of $NZ2 million compared with a slim $NZ10,000 profit in 2014, with the company citing costs associated with listing on the ASX.
UBS analyst Jordan Rogers said a2's overall sales were a "highlight" but "the one area of concern is drinking milk market share in Australia, which appears to have flattened".
White milk market share in Australia increased to 9.3 per cent in the 12 months to June 30, compared with about 9 per cent the previous year, according to Grocery Weighted Scan Data.
A2 is forecasting "strong growth" in revenue and operating earnings in the 2016 financial year, assuming demand for infant formula in Asia and Australia continues unabated.
Revenue is forecast to jump 72 per cent in FY16 to $NZ267 million, while earnings before interest, tax, depreciation and amortisation is expected to surge 150 per cent to $NZ12 million.
Earnings per share in the 12 months to June 30 were 33 NZ cents. The company will not pay a dividend for the period.