China puts $1.5bn price on baby milk formula

Bellamy’s has revealed that for weeks it had been in secret talks with Hong Kong-listed Mengniu.

Tins of Bellamy's organic infant formula. Picture: Troy Snook

It was an ambitious, almost ­utopian dream: to harness Tasmania’s unique natural advantages and “clean, green” image to create the world’s safest, most wholesome baby food products.

That dream, shared by the founders of Bellamy’s organic food group, was long ago compromised by the need to rapidly meet insatiable global demand, but some believe it may die completely with a takeover bid by China Mengniu Dairy Company.

On Monday, Bellamy’s revealed that for several weeks it had been in secret talks with the Hong Kong-listed Mengniu, which has progressed to make a takeover bid pitched at $12.65 a share in cash, which will also come with a 60c-a-share fully franked dividend. This gives a total takeover price of $13.25 a share, valuing Bellamy’s at $1.5bn but still a long way from when it was a booming stock that valued the infant milk formula group at more than $2bn and it was a favourite pick of shareholders, stockbrokers and gamblers up and down the country.

Mengniu’s second-biggest shareholder is China state-owned agri company Cofco, with a 16 per cent stake. It was one of the companies that discovered poisons in its tins 10 years ago, which sparked the whole boom in the first place for Australian clean green safe infant formula.

The takeover must be ­approved by the Foreign Investment Review Board, and while it is likely to be waved through it might attract some protests and harsh commentary as it comes in the midst of heightened concern about Chinese intrusions into the Australian economy and trade tensions between China and the US.

But back in the early 2000s, Bellamy’s was just a family-owned small entrant into the ­organic food market, with apple orchards in Tasmania’s rural north and an embryonic baby formula business.

Laura McBain was a Launceston accountant, with Bellamy’s as a client, when in 2007 she was asked to join a group of local ­investors in transforming the troubled, but promising, outfit into a successful business.

“They were a little company and had been through some challenging years and I didn’t know much about the food industry,” Ms McBain said on Monday.

“I was asked to join the group, which was a pretty big risk at the time. But what I saw was something that was unique.

“There were so many challenges in terms of supply and getting product on shelf but it just felt like we had a proposition that was genuine and real. The whole concept was about giving babies the very best we could — there couldn’t be anything better than that. You would wake up every day and genuinely feel you were contributing to something worthwhile. Everyone at Bellamy’s felt that way.”

The hunch paid off in spades for Ms McBain — who eventually rose to become general manager — and fellow investors at Tasmanian Pure Foods, including key driver Rob Woolley.

After years building products and markets — “blood, sweat and tears”, Ms McBain said — the company floated on the stockmarket in 2014, its $1 shares rising to $1.30 on the first day.

Within a few years, it had soared as high as $22 a share, as the company with bucolic beginnings struggled to keep up with surging demand, chiefly from China, where the baby formula poison scandal had sent middle-class Chinese parents on a mad scramble for safe products.

As the store shelves emptied and the company and its investors, including Kathmandu clothing founder Jan Cameron, grew wealthy, the dream of a Tas­manian-based organic nir­vana was overtaken in the rush.

Despite their best intentions, Australia — much less Tasmania — could not produce sufficient core ingredients for the baby ­formulas, in particular. Milk powder was imported from New Zealand; whey from Austria.

A $1m turnover had become a $100m turnover. At one point, before a collapse in the company’s fortunes due to contract difficulties and cancellation of a Chinese regulatory ­licence, Bellamy’s was targeting annual revenue of $500m a year by 2021-22.

Those difficulties peaked in December 2016, with the suspension of trading in Bellamy’s shares following a free-fall, which saw its value halved.

A clear-out followed and Ms McBain and Mr Woolley left the company.

Monday’s news of a takeover by Mengniu marks the culmination in the rebuilding process since, thanks to a recapitalisation by Ms Cameron and new chairman John Ho.

For some, it seems ironic that for the past 10 years Chinese personal shoppers have been stripping Australian supermarket shelves of tins of infant milk formula to send back home, while China Inc is now destined to be stripping the company itself, if the $1.5bn takeover clears foreign investment hurdles.

The ambitious reach into Australia’s food manufacturing and infant milk sector, highly coveted by other countries ­because of Tasmania’s “clean and green” credentials, has also sparked an instant $285m bonanza for the ­reclusive Ms Cameron, still a 19 per cent shareholder in the company she helped establish.

Such is the voracious demand for Bellamy’s and other Australian-made products that supermarkets such as Woolworths and Coles have had to put limits on the number of cans each shopper can buy, with personal Chinese shoppers known to strip the shelves of tins of formula to mail back to China for huge profits.

Bellamy’s has annual sales of $300m of which more than half is sourced from China, either through these personal shoppers, known as “daigous”, or through direct sales into Chinese stores and online.

Now that appetite has extended to one of China’s biggest dairy companies making a grab to buy the entire company.