Why the A2 Milk (ASX:A2M) share price is jumping 8% despite the market selloff

A2 Milk’s shares are jumping on Tuesday despite the market selloff…

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Key points

  • A2 Milk has been named as a potential takeover target
  • Saputo is rumoured to be planning to make a big acquisition
  • Jalna Dairy Foods is the other candidate

The market may be a sea of red on Tuesday but that hasn’t stopped the A2 Milk Company Ltd (ASX: A2M) share price from racing higher.

In afternoon trade, the infant formula and fresh milk company’s shares are up 8% to $5.50.

Despite this strong gain, the A2 Milk share price is still down 2% in 2022 and 46% over the last 12 months.

Why is the A2 Milk share price shooting higher today?

Investors have been bidding the A2 Milk share price following speculation that it could be a takeover target.

Though, it is worth noting that the company regularly gets touted as a takeover target. That is part and parcel of being a company that has seen its share price collapse in recent times.

Which certainly is the case for the A2 Milk share price. Its shares are down approximately 72% from their July 2020 peak following a significant deterioration in its performance and outlook.

What’s the latest?

On this occasion, Canadian dairy giant Saputo has been named as a potential suitor.

According to The Australian, the dairy processor is going shopping and is expected to announce a major acquisition target in the Australian market in the near future.

The report has suggested that A2 Milk and Jalna Dairy Foods are the two most likely candidates. Though, given that A2 Milk is a New Zealand company, perhaps that makes Jalna the favourite based on the understanding that it is an Australian acquisition. In addition, there are very limited synergies from a A2 Milk-Saputo tie up that would make a deal worth pursuing.

Neither Saputo nor A2 Milk have commented on the speculation. So, investors and short sellers (A2 Milk has short interest of 5.9%) will have sit tight and patiently await further news.

Should you invest $1,000 in A2 Milk right now?

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended A2 Milk. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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