Merger gives A2 control of its profitable Australian market

A2 Corporation has cut a deal to merge with Australian company Freedom Nutritional Products (FNP), which is listed on the ASX.

On Friday, A2 Corp signed a sale and subscription implementation agreement with Freedom to buy a 50 per cent interest in A2 Dairy Products in return for 120,376,950 fully-paid ordinary A2 Corp shares, comprising 25 per cent of the enlarged company.

A2 chairman Cliff Cook said the New Zealand company would benefit from having 100 per cent control of the first proven and profitable market for A2 milk.

"We can now set our sights firmly on future opportunities elsewhere in the knowledge the Australian market still has significant future growth potential for the company," he said.

The deal still depends on shareholder approval.

A2 directors have agreed to recommend the merger to A2 Corp shareholders, conditional on a satisfactory report from an independent adviser.

The deal will give FNP the right to boost its shareholding in A2 Corp to 27.5 per cent, paying A11c (13.5c) per share, and Geoffrey Babidge, Perry Gunner and an FNP nominee will be appointed to the board of A2 Corp.

Babidge, FNP's current managing director, is to be appointed as managing director of A2 no later than the 2010 annual general meeting in late July.

A2 shares have been worth less than 15c for the past two years and have been trading at around 8c on the NZAX.

In February, the A2 company reported a post-tax loss of $717,172 in the six months ending December after posting a loss of $1.99 million in the last half of 2008, but FNP doubled its half-year profit, to A$1.8 million.

- NZPA