The Chinese owner of the Swisse vitamins and an infant formula business expects a wave of buyouts and more short-term pain for all players in infant formula in China.
As its rival Bellamy's Australia tries to pull itself out of a serious hole, Biostime International, is also preparing to launch a new organic baby formula range under the Healthy Times brand in China.
Biostime, which paid $1.7 billion for Swisse in two tranches, is looking beyond the short-term instability caused by regulatory shifts in China.
The new brand in Biostime’s portfolio is set to bring further obstacles to Bellamy's as the Tasmanian baby food company attempts to stabilise its infant dairy formula business after a rocky period in which its share price has plummeted.
Biostime held an extraordinary general meeting on January 17 in Guangzhou in China for shareholders to ratify the deal in which it will pay $311 million for the remaining 17 per cent of Swisse it doesn't already own.
It bought the first 83pc for $1.39 billion in September, 2015 in a fiercely-contested bidding war for the vitamin giant.
In documents sent to shareholders ahead of this week’s meeting by Biostime chairman and chief executive Luo Fei, the company warned "the infant milk formula market will continue to be overshadowed by the regulatory environment due to the newly released IMF (infant milk formula) recipes registration rules".
But he said the mid- to long-term positive impact of the new regulations in China would also "represent an opportunity for the group to strengthen its market position in light of expected industry consolidation".
Mr Luo also believed the full implementation of the two-child policy in China was likely to provide a much-needed boost to the demand of infant milk formula, starting from 2017.
He also signalled that to "drive future business growth and product differentiation" the group plans to launch an organic IMF range under the Healthy Times brand to increase exposure to the organic infant formula sector, which was growing faster than the non-organic sector.
The documents for the EGM also showed the Swisse Group's net profit after tax for continuing operations for the 12 months ended June 30, 2016, was $69.3m, slightly down from $72.9m a year earlier.
Revenue for the Swisse Group for 2015-16 was $608.5m, almost double that of 2014-15, when it generated $312.4m.
Swisse made a deliberate change in strategy in 2016 to take more control of its distribution in China and aggressively cut back on the use of the army of entrepreneurial re-sellers of vitamins, known as daigou, who were buying up vast amounts of product from Australian supermarkets and chemists and then selling them online in China.
Swisse set up its own online channels and has been able to maintain its position as the leading brand online in China.
Bellamy's was hit hard by daigou buyers and sellers abandoning the Bellamy's brand after it cut prices, which in turn reduced profit margins for the re-sellers.
Bellamy's chief executive, Laura McBain, departed from the company a week ago.
The share price of Australia's biggest listed vitamins firm, Blackmores, has generally traded within a band between $105 to $120 over the past three months after some heartburn in mid-2016 triggered by uncertainty over e-commerce regulatory changes.
It was trading at $220 this time a year ago.
Mr Luo said in his letter to Biostime shareholders the 10pc premium being paid to the minority shareholders of Swisse, including Radek Sali, Stephen Ring, Michael Saba and former Foster's Group chief executive Trevor O'Hoy, in the buyout of the remaining 17pc was "fair and reasonable".
A break fee of $15m applied if the minority holders chose to back out.
Biostime expects full settlement of the transaction to occur by April at the latest.
The company said about 40pc of the $311m for the purchase of the remaining 17pc of Swisse would be funded by Biostime's cash in hand, and the rest would be funded by either debt and, or, equity.
Swisse is continuing with an aggressive vitamins marketing budget using brand ambassadors such as actor Nicole Kidman, former Test cricket captain Ricky Ponting, yoga teacher Ashley Hart, and Master Chef judge and celebrity chef George Calombaris.
Blackmores uses Li Na, the winner of the 2014 Australian Open tennis women's title, as a global health ambassador.