The New Zealand listed shares of specialist milk producer, A2 MILK FPO NZ (ASX: A2M) soared more than 24% this morning on the back of a market sensitive announcement by the company.
The dairy company only recently listed on the Australian Securities Exchange, but after a few months of weakness in both the local and Kiwi shares it appears a number of suitors have emerged.
In an announcement to the ASX the board of a2MC said it "has received an expression of interest from two associated trade parties with respect to a potential acquisition of all of the shares in a2MC."
The company said the expression of interest is non-binding and subject to a number of key conditions, including access to due diligence, regulatory approval, no material change to the company's affairs 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 company wrote in its ASX release.
The board said it will seek further information on the proposal and will update the market accordingly.
Should you buy in?
The eyes of many investors light up when rumours of a takeover are afoot. And rightly so. Shares of the target will often jump 20% in a day because the market assumes a premium will be paid for the shares.
However, in this instance, I find it a little interesting that the company has released this news before receiving any firm offer.
Since the share price has jumped meaningfully higher, suitors will now have to fork out more cash if they want to buy the company. This could be discouraging because the value proposition may no longer be favourable.
As always long-term investors should focus on the underlying strength of the business and not rely on 'catalysts' to boost share prices for an immediate profit.
Whilst both a2MC and Bellamy's Australia Ltd (ASX: BAL) offer great products and could have exciting futures ahead (especially in Asia), I'd prefer to own shares in just the latter, for now.
