Looks like we are going to have some interesting times ahead of us. I believe Nestle management is very concerned with the disruption A2M milk company has had in the world market place. I believe their 1st attempt to stem our growth was not to buy us out but to test the waters by coming out with a copycat product. They were very sly trying to source product from clean and green NZ farmers so they could closely align themselves with the same country which A2M sources supply which did not work out for them. Even though their A2 product was sourced in one country, then shipped to another for processing they sent it all the way to Oz and tried to undercut us on price in a vain attempt to capture market share. They know the Chinese trust a product that is popular here and want the same thing for their kids. That did not work out as well and soon their product was consigned to bargain basement bin here while A2M has the seemingly unassailable leading top position in the Oz IF market .
In recent times I think they have tried not taking us head on and gone down another path with IF by coming out with another product with a point of difference. They have included in their recent reports they have been seeing success with new IF in China with HMO's (Human Milk Oligosaccharides) I wont go into detail of its benefits but for those interested Google it to see the science behind it. Unfortunately they dont have the market to themselves as Abbott Nutrition, a much smaller player in the space has their own version as well. This new product is increasing sales for them but unless there is a major shift from people jumping ship from A2 to HMO IF products the growth is only incremental while our growth although at this point coming off a smaller base is explosive. If the rate of growth for Nestle's HMO's products does not increase by a big margin then sooner than later we are going to capture the much touted 10/15% of the Chinese IF market.
Nestle, although it has a market cap of 283B, is carrying a debt of nigh on 30B. I think H man figure of a $21 for a TO per share would be laughed at. Remember A2M is not just another player out there that is just merely profitable. It has explosive growth with a product with a unique point of difference that no one who has tried to replicate the product, regardless of how deep their pockets are. have been able to gain traction.
Remember A2M has no debt, has a large interest in Sylait its profitable IF manufacturer, a massive JV partnership with Fonterra which is the arch enemy of Nestle in the world wide milk market. We have over 300M COH which by the time a offer would ever eventuate would be close to or over $1b on the books. H man a 40% premium would not even warrant a response. With all the pluses I have mentioned I think at least a 80% premium would be in order just to get a response.
I think Jayne is one smart cookie and underneath that homely facade she is ruthless CEO, a smiling assassin that would use a TO over for A2M to our advantage. I believe she would first use the offer to get much more exposure in the world stage of the benefits of A2 while convincing retail and the unfortunately short sighted Instos to hold onto the stock. She knows others have tried to replicate us and failed, growth is still off the charts so thank you for the offer but a big no thank you. She has the Ego, pride, cunning and skills to take this company with the help of the BOD all the way.
Nestle is the only player with the MC to be able to swallow A2M at this point in time with the 80% premium I believe it would entail just to get to the negotiating table with its current growth prospects. Even though Nestle is a massive company it would take some balls for their conservative CEO and their BOD to agree to nearly double the debt they are currently carrying. They would have to be successful with their first offer as I am sure Jayne and our BOD would use the publicity to our advantage and increase the interest in the science of A2 products. If we keep growing at this rate we only need another 4 or 5 reports of sustained growth that would make our market cap to too big for even Nestle to contemplate a TO offer.
Like Volkl said, we are much more than a IF company and goodness knows where we will be in years to come if we are not taken out before we have to chance to take this company to the next level by ourselves. We have the product and the management to do so all own our own so hopefully retail holders which only account for 30% of holder base and the Insto's dont go for the quick profit If a TO eventuates. As a shareholder I hope we get our chance to see further down the track what we could grow and morph into on our own.
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