Freedom on cards for A2

Freedom already holds about a one-fifth ownership stake in the dual Australian and New Zealand-listed A2 Milk business and has been a key influence in the NZ-founded company's move to Australia, and its growth.

A2M managing director Geoff Babidge was previously a boss at Freedom before developing the milk business's management operations in Australia.

One of Freedom's key shareholders and large-scale Sydney basin dairy farmers, the Perich Group, is also a major supplier of A2 milk to the company's Sydney processing plant at Smeaton Grange.

In fact, the Leppington Pastoral Company-based Perich family, which milks almost 2000 cows, also built the processing plant as part of another partnership.

Early this year, the family company, in partnership with Freedom and Chinese milk business New Hope Dairy Holdings, launched a $500 million investment group - Australian Fresh Milk Holdings - with ambitions to invest in the Australian dairy industry and export markets.

In April AFMH began acquiring the 3700-cow Moxey Farms dairy business at Goologong in the the Lachlan Valley in a deal which will involve the Moxey family expanding that successful production business model elsewhere in Australia.

Freedom has confirmed that, as part of "a consortium", it is interested in A2M, and it has provided an "indicative non-binding and conditional expression of interest".

No mention of AFMH or New Hope Dairy Holdings was made in a statement to the Australian Securities Exchange (ASX).

Freedom wants to undertake due diligence to determine whether the group should enter into a binding proposal.

However, the food company, which produces specialist cereals and snack foods and a range of UHT products, including milk, soy drinks and quinoa juice, has noted there was no certainty that an offer to buy the specialty milk business would eventuate.

A2 Milk Company markets and processes dairy products made from milk containing only the A2 beta-casein protein in Australia, NZ, the UK and most recently the US west coast.

It also sells A2-based baby formula, made in NZ, in China.

Although last financial year's earnings of about $3.2 million were relatively modest, the company's fresh milk sales have grown fast to hold a 9.3pc value share of the Australian grocery sector milk market in the space of just seven years.

Current local sales are up about 43pc year-on-year with A2 reporting a total revenue of $74.8m - up 38pc - for its first half of 2014-15, and a $125,000 net profit after tax.

A2's marketing success has been founded on the widely-held, but often disputed, belief that A2-only milk is more easily digested by some people who have difficulty with conventional milk and regular dairy products containing both A2 and A1 beta-casein.

Expansion in the UK in the past two years got off to a slow start when an initial partnership arrangement fizzled with a processor out last year.

In the US, A2 expects to spend $US20 million annually revving up its product sales after launching in April.

Yesterday, A2M confirmed it had received an expression of interest from "two associated trade parties" with respect to a potential acquisition of all of the shares, but did not name the parties involved.

The takeover proposal was subject to a number of conditions including access to due diligence, exclusivity, no material adverse change in A2M's prospects, various approvals under the NZ Overseas Investment Act and no change in the number of shares on issue.

"The last condition is particularly relevant as the company has recently been contemplating, and was in advanced stages of planning for, an equity raising," the A2M statement to the ASX noted.

However, the reference to a capital raising was fresh news to the market given that just three weeks ago A2M had confirmed "no present intention to raise capital".

Shares in A2M surged 19.6pc to 61 cents on Monday, giving the group a market value of $402m.