As previously signalled, a2 Milk will take 75% of the company for a total of $268.5m, based on an enterprise value of about $385m. The acquisition will be undertaken on a debt-free, cash-free basis and funded from a2 Milk’s existing cash reserves.
The deal is subject to approval from the Overseas Investment Office (OIO) and completion is expected to take place on May 31.
a2 Milk says it expects to incur approximately $10m in transaction costs which will be a one-off expense in the current period. Approximately half will be recognised in the first half.
As part of the acquisition process, a2 Milk has begun to develop a medium-term operating plan for the facility.
With the business currently producing a high proportion of commodity milk powder products, the plan is to support its transition to predominantly consumer packaged nutritional products for a2 Milk over the medium-term.
For that to happen, a blending and canning facility and associated infrastructure will need to be established, which will require an additional investment in the order of $120m during the two-to-three years following completion of the transaction, the company said. An A1 protein-free milk pool will also be developed.
In the transitional period, Mataura Valley will continue to operate as a manufacturer of commodity powders and some base powders for nutritional products, a2 Milk says.
“We anticipate that during this period (FY22-24) the business will operate at approximately ebitda break-even, with the business returning a positive ebitda from FY25, when significant nutritional volumes will be manufactured at the site,” it said.
a2 is keen on the deal because it establishes a dual supply arrangement for nutritional products to complement existing supply relationships that remain in place with Synlait Milk and Fonterra.
A key feature is that Matura Valley’s majority shareholder – China Animal Husbandry Group – will retain a 25% interest.
China Animal Husbandry Group is a wholly-owned subsidiary of China National Agriculture Development Group, the parent company of a2 Milk’s strategic partner in China, China State Farm Holdings Shanghai Co.
a2 Milk chief executive Geoffrey Babidge said the company is “very pleased that the transaction has the support of all MVM’s existing minority shareholders, many of whom are farmer suppliers.”
Mataura Valley launched a search for an equity investor last year. It had taken on so much debt that any sales and cash generated were used to pay off interest costs and it breached covenants with both China Construction Bank and China Development Bank.