Bellamy's chairman urges support for Chinese takeover as retaliation fears linger

Bellamy's chairman John Ho has urged shareholders to support a takeover for the infant formula maker by dairy giant China Mengniu Dairy Company, hinting at potential retaliation from Chinese regulators if the acquisition is voted down.

In a letter to investors, Mr Ho wrote that if the takeover proceeds, shareholders will avoid ongoing risks, including the "key uncertainty" of Chinese regulation.

Bellamy's chairman John Ho.Credit: Carsten Schael

"These risks and uncertainties...include risks associated with Bellamy's significant exposure to the Chinese infant formula consumer market and regulatory environment," Mr Ho wrote.

"Chinese regulatory risks include risks around obtaining necessary approvals from China's State Administration for Market Regulation (SAMR) for the sale of 'Chinese-label' products into China, and cross-border e-commerce regulation for the sale of 'Australian-label' products into China, as well as products indirectly imported into China through daigou 'direct mail' channels."

The letter was enclosed in a scheme booklet for the takeover released on the ASX on Thursday, after the Supreme Court of NSW granted Bellamy's approval to proceed with a vote on the deal.

Bellamy's board unanimously endorsed the takeover by Hong Kong-listed Mengniu, worth $1.5 billion, in September. Chinese government owned Cofco is a substantial shareholder in Mengniu, owning about 16.2 per cent of its shares.

Tasmania-based Bellamy's applied to sell its organic infant formula range in China in late December 2017 and is still awaiting approval.

Bellamy's board believes the approval will be granted, the scheme booklet stressed, but wasnot certain of this outcome and did not know how long it might take.

Currently, the company's Chinese sales occur through via crossborder e-commerce channels and daigou, but even those channels could be put at risk if regulations change in China or Australia, the booklet said.

The company also cited "ongoing market specific risks such as birth rate decline, competitive environment and behaviour, and also geo-political risks" in the Chinese market.

Independent expert Grant Samuel concluded the scheme was in the best interests of Bellmay's shareholders in the absence of a superior proposal.

Shareholders will convene to vote on the takeover bid on December 5 in Melbourne.

If the vote is successful, the scheme still needs to be approved by the NSW Supreme Court and the Foreign Investment Review Board.

At the company's annual general meeting in Launceston on Thursday, chief executive Andrew Cohen told shareholders the company's outlook this year was stronger due to momentum from a re-brand in China and the performance of its food portfolio, following a challenging 2019 financial year.

Mr Cohen said group revenue for this financial year was expected to grow 10 to 15 per cent on the prior year. The remuneration report, which gave Cohen a pay packet of $2.1 million, passed with 96 per cent of votes in its favour.