Takeover speculation drives up a2 share price

One valuation of takeover target a2 Milk Company puts it 80% above its pre-takeover price at $1.03 per share, giving it a market capitalisation beyond $66million.

Another speculates a $2 per share offer, or market cap of $132million, compared with Monday morning when the market valued a2 Milk Company (ATM) at 57c, with a market cap of more than $37.5million.

Before Monday's announcement of an ''expression of interest'' to take over ATM, by Australian listed shareholder Freedom Foods and US based Dean Foods Company, its shares were trading at 57c. Yesterday they were yesterday trading around 77c, with a market cap of more than $50million.

The Australian Financial Review speculated the bid could be as much as $2 per share, a massive premium to ATM's 57c on Monday.

Forsyth Barr broker Andrew Rooney said given Freedom's 18% stake in ATM, and further 19% in conjunction with Arrovest, he believed there was a ''solid chance'' of a more formal proposal being put forward; the ''bid value'' being $1.03.

Freedom and its partner did not make an offer per share, but registered their interest, including conditions the number of shares on issue did not change.

''Our bid valuation [$1.03] is based on our belief that the most value for ATM shareholders lies in an acquisition by a large fast-moving consumer goods [company] or dairy player,'' Mr Rooney said.

Craigs Investment Partners broker Peter McIntyre said while the ''base case'' valuation remained at 66c, for the ''bull case'' valuation of $1.17 to be achieved, another trade player would have to enter the bidding process.

Forsyth Barr retained its ''base valuation'' at 67c per share, because of ATM's poor growth record, but the ''bid valuation'' of $1.03 was based on the ability of a larger company to better promote and distribute the ATM brand in offshore markets, particularly China.

He said ATM's earnings were being underpinned by sales in Australia, a revised strategy was targeting the UK, and ATM had entered the US, Mr Rooney said.

Mr Rooney said while ATM had confirmed it was in the process of planning a capital raising, conditions in the expression of interest were likely to prevent that from happening.

simon.hartley@odt.co.nz

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