A2 MILK FPO NZ (ASX: A2M) ("A2 Milk" or "a2MC") has this morning provided an update on an expression of interest that it has received from two parties which has seen its share price skyrocket this week.
The New Zealand-based dairy business listed on the Australian Securities Exchange in March this year, but endured weak trading conditions in the months that followed. It seems a number of parties want to take advantage of this weakness with the company announcing on Monday that it has "received an expression of interest from two associated trade parties with respect to a potential acquisition of all the shares in a2MC."
There's nothing like a bit of takeover speculation to get a stock moving. On Monday, the stock surged 19.6% from 51 cents to 61 cents, followed by another 12.3% gain on Tuesday. The stock closed at 68.5 cents for the day and has retreated marginally during today's session.
Upon the ASX's request of response to media speculation, A2 Milk updated the market this morning, confirming that the interested parties are Freedom Foods Group Ltd (ASX: FNP) and Dean Foods Company. Furthermore, the expression of interest it has received is indicative, conditional and non-binding.
Indeed, that last point is important for investors to keep in mind. No binding agreement has been made and the surge in the company's share price this week could be enough to complicate negotiations or diminish a potential acquirer's interest altogether. In the event that this takeover prospect falls through, A2 Milk's shares could come under heavy selling pressure as a result.
On the other hand, A2 Milk is well positioned to benefit from growing demand for Australian agricultural products, including from China. Its products are also gaining traction locally due to the fact that its milk only contains A2 milk proteins and not the A1 milk proteins that most other commercial milks do (which the company suggests can leave some consumers feeling nauseated or with stomach pains).
Given that the stock has already surged 30% on the recent takeover speculation, investors would be wise to avoid the company, for now. Instead, you could look towards Bellamy's Australia Ltd (ASX: BAL) which is also in an excellent position to benefit from booming Chinese demand for baby formula over the coming years.
