A2 Milk to boost infant nutrition business, buying 75pc of NZ’s Mataura Valley Milk

A2 Milk steps up infant nutrition manufacturing with $NZ270m deal to buy stake in China-backed Mataura Valley Milk.

A2 Milk is bolstering its infant nutrition business. Picture: AAP

The a2 Milk Company has taken a significant step to bolster the manufacturing capacity of its infant nutrition business by striking a deal to pay $NZ270m ($246m) for a 75 per cent stake in a New Zealand group backed by heavyweight Chinese investors.

Only days after A2 Milk opened its $NZ854.2m cashbox to invest in manufacturing with the proposed acquisition of a milk processing facility on the Murray River in Victoria, A2 announced on Friday it had entered into exclusive due diligence on Mataura Valley Milk.

A2 is proposing to pay $NZ270m for a 75 per cent interest in MVM, based on an enterprise value for the group of $NZ385m. MVM’s major asset is a manufacturing facility in Southland, New Zealand. It will be funded by A2’s cash reserves.

The proposed deal has the support of MVM’s current majority shareholder, China Animal Husbandry Group (CAHG), which would retain a 24.9 per cent interest in MVM.

CAHG is a wholly owned subsidiary of China National Agriculture Development Group, which is also the parent company of A2’s strategic partner in China, China State Farm. It comes as other Australasian food and beverage companies such as Treasury Wines have been hit by the Chinese government’s anti-dumping probe into Australian wine.

The government also imposed a 80 per cent tariff on Australian barley earlier this year. But A2’s Chinese operations are unaffected.

“The potential investment in Mataura Valley Milk’s recently commissioned facility, alongside China Animal Husbandry Group, aligns with this strategic objective as we look to complement and build upon our current strategic relationships with Synlait Milk and Fonterra Co-operative Group, which remain in place.” said A2 chief executive Geoff Babidge.

“Our intention would be to invest further to establish blending and canning capacity at Mataura’s facility to support the establishment of a fully integrated manufacturing plant for infant nutrition.”

The move comes after A2 this week delivered a 34.1 per cent surge in full-year net profit.

A2’s successful Platinum brand of infant formula is produced under contract by Synlait in New Zealand. Infant formula accounted for $NZ1.42bn of A2’s revenue in 2020, up 33.8 per cent.