a2 shares jump as Aussie media reheats Nestle rumours

A report in the Australian media ramping up speculation about a takeover of the a2 Milk company by Swiss-based global food giant Nestle saw the dual-listed dairy company’s share price jump in NZX trading today.

Monday, August 16th 2021, 5:41PM

by BusinessDesk

However, local analysts are sceptical about the suggestion, which appears to rest primarily on the fact that the a2 share price has collapsed over the last year.

Today’s report in The Australian echoed a similar report in April, which also cited possible interest from Nestle and Mead Johnson as buyers.

As the story gained traction, the a2 share price rose as high as $7.16 in the course of the day, having closed last Friday at $6.33 and high a low point for the year of $5.56 on May 18. A2 shares were trading at $7.06 just after 4pm.

The Australian speculation also suggested that no move would come before a2 released its full-year profit results next week.

However, Adrian Allbon, an equity research director at New Zealand’s largest broking house, Jarden, suggested Nestle was having trouble of its own in the Chinese infant formula market, where a2 had been a strong performer until a government crackdown put paid to the lucrative ‘daigou’ market channel.

Daigou was a form of export trade where individuals or syndicates outside China purchased goods for sale to Chinese consumers.

However, a combination of the global pandemic stifling cross-border travel by daigou shoppers and a change of heart in Beijing towards encouraging local competition has been instrumental in the collapse of the a2 share price from a high on Aug 18 a year ago of $21.50 to a low point of $5.56 in May.

“Nestle has its own a2 SKUs (products) and highlight China infant formula was a problem area in its recent first-half result,” said Jarden equities research director Adrian Allborn.

The a2 milk variety – said to be better for human health than the more common a1 milk – was an “interesting niche” that had attracted various global players into the segment, including Nestle.

“From the recent Nestle result, it felt their M&A (merger and acquisition) focus was more on vitamins, minerals and supplements,” Allborn said in an email to BusinessDesk. “Not sure whether a2 attributes fit this brief or not.”

A transcript of Nestle executives discussing the half-year results reported a fall in infant nutrition sales in China, with the market “impacted by challenging dynamics” and a need for “turnaround initiatives”.

Longer-term factors playing against a2 include a falling Chinese birth rate, growing geopolitical tensions between China and western trading partners, and underperformance by the English language labelled product in markets other than China, according to a recent research note by Forsyth Barr.

The Chinese trend towards buying local brands was also hurting a2, which holds a 25% shareholding in Synlait Milk and concluded the purchase of a 75% stake in Mataura Milk last month.

Despite owning these elements of the supply chain, the company has also come to be recognised as primarily a marketing and branding vehicle with a business model less dependent on owning the milk supply chain than traditional dairy companies.

Tags: Market Close