Bellamy’s Share Price Climbs 54.9%: A Conspiracy Theory

Shares in Tasmanian-owned baby food and formula company Bellamy’s Australia Ltd [ASX:BAL] have had a massive rise today.

After closing at $8.32 on Friday, they are up around 55% to $12.89, at time of writing.

The spike was triggered by news of the company entering into a Scheme Implementation Deed with Chinese dairy company, Mengniu, who are offering $13.25 per share to Bellamy’s shareholders if the Scheme proceeds.

Shareholders are no doubt delighted by the deal, which would give them a 59% premium on the Friday closing share price.

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Chinese government behind the Bellamy’s takeover

The board of directors are unanimously voting in favour of the Scheme with all shares that each of them own, and they are encouraging current shareholders to do the same.

The proposed Scheme is an attractive all-cash transaction,’ says Bellamy’s Chair, John Ho.

It reflects the strength of the Bellamy’s brand, the dedication of 160 passionate employees and the progress of our turnaround plan.’

The Scheme is in the best interests of shareholders,’ added Deputy Chair, John Murphy.

Having fallen more than 62% in 18 months, the significant premium is certainly appealing on face value.

During this period, Bellamy’s tried to secure a SAMR registration (China’s State Administration of Markets Regulations) so they could sell their organic baby formula in Chinese retail stores.

But with these efforts coming to no avail, the 18-month weakness in the Bellamy’s share price ensued. As of Friday’s close, some 15% of shares on issue were short positions.

A recent chanticleer article in the AFR hints that there could be more than meets the eye to this deal.

From James Thomson’s piece:

In these days of sadly heightened trade tensions, conspiracy theorists could have a field day with the idea of the Chinese government refusing to give Bellamy’s the licence it needs to sell in China, and then backing a takeover bid for the very same company…You’d have to think the SAMR license approval might not be too far away now.’

The piece also notes:

What makes the deal extra spicy is that Mengniu, which is listed on the Hong Kong Stock Exchange, just happens to be 16.2 per cent owned by Cofco, a Chinese government-owned food conglomerate.

Infant formula behind the next trade war flashpoint?

It’s an interesting model for future acquisitions of Australian businesses that do a significant amount of business in China.

Step 1: Make it hard for them to operate

Step 2: Watch their share price slide

Step 3: Lob a bid at them

Step 4: Repeat

Again, this is just a theory about what happened to Bellamy’s over the last 18 months.

But imagine if there was a regulatory squeeze put on Australian wine companies and suddenly they started getting snapped up by companies that are part owned by the Chinese government?

You could hazard a guess that there would be some kind of outcry.

As such, it remains to be seen as to whether the Foreign Investment Review Board (FIRB) will have any qualms with the deal.

Maybe they will stick it to China by blocking it?

Infant formula behind the next trade war flashpoint?

It’s not as crazy as it sounds.


Greg Canavan,
For The Rum Rebellion

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