A2 Corp in bid to merge with Australian partner

Listed milk company A2 Corporation is in talks to merge with its Australian joint venture partner in a bid to accelerate growth and profitability.

A2 owns and licenses intellectual property for identifying cows, producing and marketing milk with the A2 beta-casein protein.

There are two types of milk, A1 and A2, which are usually mixed together.

The A1 beta-casein, which is a gene carried by about half of New Zealand cows, has been linked by some people to heart disease, diabetes and schizophrenia.

A2 director David Mair said the company had been seen as an intellectual property business but now saw itself more as a branded products company in control of its own distribution.

The company's 50-50 Australian joint venture with Freedom Nutritional Products - A2 Dairy Products Australia - manufactured or licensed the production and controlled the distribution of products, including fresh and UHT milk. A2 Corporation lost $717,172 in the six months ending December 31, compared with a loss of $2 million in the six months ending September 30, 2008.

The earnings before interest and tax of the joint venture were A$1 million for the six months ending December 31, 2009, compared with a loss of A$3.5 million in the 2008 financial year.

"With A2 this can truly go global," Mair said. "If we can get Australia and show the growth there ... and then if we took a second market, it doesn't matter whether it's the States or California or Japan or Korea or whatever, if we could do that then any investor will see how this works."

The most exciting thing about merging with Freedom Nutritional Products was related to the strength of the combined management and the ability for faster execution of plans, he said.

ASX-listed Freedom Nutritional Products is a food company operating in the health and wellness sector, including soy milk, imported fish and products free from nuts and gluten.

A2's balance sheet was in good shape and the company did not have to merge but it was a great opportunity, Mair said.

"We can continue to do what we're doing and I believe we'll get there," he said. "It's just that it will take a lot longer and it'll take more time, it'll take more resources and it'll cost more and we are losing money now."

A merged business would be immediately profitability, he said.

The two parties would negotiate and undertake due diligence for the possible all scrip-based "merger of equals" under which the surviving entity would remain listed on the ASX.