China Mengniu Dairy, the country's largest dairy producer, has offered to buy Yashili International Holdings, a local infant formula maker, for HK$12.5 billion (US$1.61 billion), according to a regulatory filing Mengniu submitted to the Hong Kong Stock Exchange on June 18.
Under the agreement, Mengniu will buy 75.3% shares of Yashili from Zhang International which is owned by Yashili chairman Zhang Lidian's family and CA Dairy, a wholly-owned subsidiary of the private equity giant Carlyle Group.
The rest of Yashili shares will be purchased at HK$3.5 each, a premium of about 9.4% over the closing price of the company' stock on the last trading day on June 13.
The deal will allow both parties to leverage each other's capabilities and resources to "capture the rapid growth of paediatric milk formula market in China," Mengniu says in the filing.
Established in 1983 in Chaozhou, Guangdong province, Yashili is a leading player in China's infant formula and soymilk powder markets. The raw materials of all of its paediatric milk powder are imported from New Zealand, the company says in its 2012 annual results statement.
Yashili posted a net profit of 468.5 million yuan (US$76.48 million) in 2012, up 53% from a year earlier. Total revenue surged 23.6% to 3.66 billion yuan.
UBS is the lead financial advisor to the offer while HSBC and Standard Chartered are the joint financial advisors. It is Mengniu's third deal since May.
COFCO, the state-owned largest food company in the country, has agreed in late May to set up a 51:49 joint venture with Paris-based Danone to provide yoghurt products in China. As part of the agreement, COFCO will sell 148 million shares in Mengniu to the joint venture. COFCO will remain the largest single shareholder in Mengniu after the sale.
Early in May, Mengniu bought a 26.92% stake in China's largest dairy farming and raw milk producer China Modern Dairy Holdings from private equity firms KKR & Co LP and CDH Investments.
Trading of Mengniu and Yashili's shares resumed on June 19. Mengniu's share price rose about 6% while Yashili was up over 3%. The benchmark Hang Seng Index slid about 1%.
