The Bellamy's Australia Ltd (ASX: BAL) share price is trading an eye-watering 55% higher today, after the company announced to the ASX before market open this morning that it has received a takeover bid. Bellamy's shares closed at $8.34 last Friday, but opened at $12.40 this morning, and have since rallied higher still, sitting at $12.88 at the time of writing – a jump of 54.81%.
Why is the Bellamy's share price exploding?
The company announced this morning that it has "entered into a Scheme Implementation Deed under which it is proposed that China Mengniu Dairy Company Limited will acquire 100% of the issued share capital of Bellamy's". Mengniu Dairy is listed on the Hong Kong stock exchange and has a market capitalisation of $24.6 billion.
If the offer goes forward, Bellamy's shareholders are looking at receiving $12.65 in cash per share, as well as a $0.60 per share fully franked special dividend if the offer proceeds.
This offer values Bellamy's at roughly $1.5 billion, which reflects a price of approximately 30 times Bellamy's earnings for the 2019 financial year.
The Board of Directors at Bellamy's announced that they "unanimously recommend that Bellamy's shareholders vote in favour of the Scheme."
What's next for Bellamy's shares?
Although today's share price is a significant move and has resulted in a new 52-week high for the company, Bellamy's shares are still some ways off the all-time high of $22.08, reached in March 2018. At the time, Bellamy's was riding high on its rapid growth and imminent launch into the lucrative Chinese market.
Since that time, a combination of increased competition from other ASX dairy companies such as the A2 Milk Company Ltd (ASX: A2M) and the ongoing failure of Bellamy's to get approval from China's State Administration of Market Regulations (SAMR) to sell its infant formula products in China saw profits and earnings collapse, severely suppressing Bellamy's share price. These complications (and no end in sight for the SAMR delay) resulted in the shares losing over half their value before today's offer.
Still, anyone who bought into Bellamy's at its 2014 float at $1.38 would be up 816% if the offer is accepted.
The implementation of the offer is still subject to some conditions, including approval of shareholders, as well as the Australian Foreign Investment Review Board process. Bellamy's Deputy Chair John Murphy stated that the review process "has a long way to run, [but] we're feeling very positive". If these regulatory hurdles are cleared and the offer approved, it would represent the end of Bellamy's tenure on the ASX.
