New Zealand's A2 Milk Co. has completed a due diligence process for the dairy and infant formula maker to acquire a controlling interest in Mataura Valley Milk (MVM), a local dairy nutrition business.
Publicly-listed A2 Milk announced its intention to take a 75% stake in MVM in August and has now entered a binding agreement with the company, with a deal expected to close on 31 May subject to clearance from the New Zealand Overseas Investment Office.
The transaction price is NZD268.5m (US$193.6m) based on an enterprise value of around NZD385m. The acquisition will enable A2 Milk to "participate in nutritional products manufacturing, provides supplier and geographic diversification, and strengthens our relationship with key partners in China," it said in a statement.
China Animal Husbandry Group (CAHG) will retain a 25% interest in MVM. CAHG is a wholly- owned subsidiary of China National Agriculture Development Group Co., the parent company of A2 Milk's strategic logistics and distribution partner in China, CSFA Holdings Shanghai Co., also known as China State Farm.
A2 Milk CEO Geoff Babidge said: "MVM provides a unique opportunity to acquire a new world class nutritional products manufacturing capability in New Zealand, alongside a highly-respected China state-owned enterprise in China Animal Husbandry Group. We have worked closely with CAHG and MVM over recent months and have developed relationships with both teams that we are confident will provide a strong foundation for the business going forward."
MVM's facility in Southland, New Zealand, currently produces commodity milk powder products and A2 Milk plans to support its "transition to being a manufacturer of predominantly consumer packaged nutritional products" in the medium term. In that effort, a new blending and canning facility will be required with a planned investment of NZD120m in the first two to three years following completion of the transaction, along with the development of an A1 protein free milk pool, the company said.
Dr. Xue, the chairman of MVM, added: "CAHG welcomes The A2 Milk Company as a strategic partner as both companies share the same vision of creating large scale world-class nutritional manufacturing at MVM. A2 Milk already works closely with our sister company, China State Farm, and is well respected in the China market."