Bellamy's Organic was once a darling of the stock market. Photo / Getty Images
Bellamy's Organic was once a darling of the stock market. Photo / Getty Images
Comment:
Consider these three closely related facts.
Fact one – Australian baby formula maker Bellamy's Organic is waiting to have its products registered for sale in China.
Fact two – As Bellamy's share price has slid from over A$22 dollars to A$8.32 in mid-September and China Mengniu Dairy Company hastaken advantage of the fall to lob a A$13.25 a share takeover bid.
Fact three – China Mengniu Dairy Company is 28 per cent owned by Cofco, a Chinese government-owned food conglomerate.
If we take those three facts together, the more cynical among us might be tempted to wonder why there's been a delay in Bellamy's receiving the registration to sell its baby formula in Chinese retail outlets and help its profit and share price recover as a result. Those of us with an extra-large helping of cynicism might be tempted to further wonder how long it will take for registration by China's State Administration of Markets Regulations (SAMR) to come through after the takeover deal is completed.
Certainly Bellamy's chief executive Andrew Cohen is no such cynic. Last Monday he denied Mengniu's ownership would "fast-forward the process or guarantee any licences. I am not sure that's the rationale for the deal".
Some politicians don't share that view, however. Centre Alliance Senator Rex Patrick asked, after the deal was announced, if the Foreign Investment Review Board and the Treasurer Josh Frydenberg would "investigate the role of the Chinese government in manipulating market access to support Chinese company buyouts".
And Greens Senator Peter Whish-Wilson wrote to Frydenberg asking the Foreign Investment Review Board to probe whether the Chinese government had depressed Bellamy's share price ahead of an opportunistic takeover offer.
The government ducked for cover, with Finance Minister Mathias Cormann saying it didn't comment on FIRB matters.
And it's questionable whether this is a deal that would be rejected by FIRB. The board typically looks at transactions involving significant amounts of land and natural resources, neither of which dairy producer Bellamy's has.
Bellamy's management has recommended that shareholders accept the offer.
Chairman John Ho, a Hong Kong investor whose company owns 7.73 per cent of the company worth A$116 million at the takeover price, and other directors have recommended shareholders accept the deal.
Ho told an investor call on Monday morning that the offer is a good result for investors, which he said "crystallises the value of the Bellamy's business at this point in time".
The key part of that phrase is "at this point in time".
Without the SAMR registration, that is probably a fair price for Bellamy's. Yet SAMR regulation can happen at the stroke of a bureaucrat's pen but if the takeover bid is thwarted – who knows? – it might never happen.
Bellamy's Organic wants its products registered for sale in china. Photo / File
Bellamy's is currently selling in China via daigou, middlemen who buy the baby formula here and take it back to China to sell. It's inefficient and the company has to give up some of its profit margin to the daigou. There is no doubt SAMR would be a big boost for the business.
However, the current offer might be the best shareholders can realistically hope for. Those shareholders who would have preferred to hold on for the share price upside that will come with SAMR registration might be out of luck.
One key player will be Jan Cameron, the founder of outdoor clothing company Kathmandu. She owns 17 per cent of the Bellamy's and so the takeover would be almost impossible without her support.
In 2016 she tried to block Chinese billionaire Lu Xianfeng from buying Tasmanian farming operation Van Diemen's Land Company from its then-Kiwi owners. She warned it was a matter of food security and lobbied politicians and went so far as to launch her own rival bid for the company.
However, she was unsuccessful, And Van Diemen's is now owned by Xianfeng's Moon Lake Investments.
So far Cameron hasn't said which way she is leaning on the Bellamy's deal.
She was one of the early investors in the company and her stake is now worth about a quarter of a billion dollars, so she has done very well.
Cameron, whose net worth is estimated at $423 million, will have to weigh up personal gain against principle.
The takeover demonstrates that Chinese governments, business leaders and the companies they run play a longer and arguably more strategic game than we do in Australia and New Zealand.
China is already the world's largest baby formula market and its consumers appetite for milk and meat from clean green countries such as Australia and New Zealand keeps on growing.
But companies eyeing the potential of this market would do well to tread cautiously and – to draw on an appropriately agricultural cliché – not put all their eggs in one basket and look to other markets.
