Mergers & Acquisitions

Yili Group

Yili in US$850m bid to buy US yoghurt producer Stonyfield

The Inner Mongolia-based company is “a front runner” in the bidding as Beijing encourages domestic firms to go global on a buying spree.

PUBLISHED : Thursday, 11 May, 2017, 8:40pm
UPDATED : Monday, 15 May, 2017, 12:06pm

Inner Mongolia Yili Industrial Group, China’s biggest dairy company, is competing to buy Stonyfield, the largest American producer of organic yoghurt, in its first overseas acquisition to expand the range of its dairy products.

Yili is vying with Dean Foods Co. of Texas in buying Stonyfield in a deal estimated at US$850 million, although the Chinese company is considered the front runner because it’s offering a more favourable pricing, according to people familiar with the matter. Yili said in a stock exchange filing the bidding process is in its preliminary stages.

If Yili prevails in the acquisition, the company will own control of a yoghurt producer whose 2016 revenue topped US$370 million. The Chinese company may want to introduce the Stonyfield brand to China to give it an edge against its competitors in a market where consumers place a premium on celebrated Western labels, analysts said.

“Yili was previously known to be very cautious in making deals, but this time it is getting serious about that,”said Shen Meng, an executive director with boutique investment bank Chanson & Co.

Hit hard by a 2008 scandal whereby hundreds of babies were sickened by melamine-tainted milk, Chinese dairy companies including Yili and China Mengniu Dairy had been buying overseas dairy farms and producers to improve the quality of their own products and restore consumer confidence.

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“The Chinese government is now encouraging so-called national champions like Yili to go on a global buying spree,”said Song Liang, an independent dairy analyst.

Stonyfield, based in New Hampshire, said on its website that it “makes everything certified organic,” claiming that its products are made without the use of toxic persistent pesticides, artificial hormones and antibiotics, or genetically modified organisms.

Yili’s bid for Stonyfield follows a decision last week to scrap its US$667 million plan to buy 40 per cent of China Shengmu Organic Milk, citing regulatory hurdles in China. The Chinese government had been tightening the regulations over remittances since late 2016, following a slump in the yuan’s exchange rate and concerns of capital flight.

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Seen as an essential element of a healthy diet, yoghurt now makes up of almost 18 per cent of China’s total consumption of fluid dairy products, and market researcher Kantar expected it to remain a chief driver of growth going forward.

“With a big US brand in its portfolio, Yili can boost its image in China,”said Song.

Stonyfield is being sold by French consumer company Danone, part of an agreement with US antitrust authorities to secure approvals for a US$10 billion takeover of soy milk producer WhiteWave.

However, Yili will have to fend off suitors that are likely to include Dean Foods, one of America’s largest dairy companies, in its bid for Stonyfield.

Other hurdles facing Yili include Chinese government’s recent push to curb money outflows as well as potential regulatory scrutiny in the US.

“Yili might have already sought for advice from Beijing before it made the bid, and given that the value of the deal does not exceed US$1 billion, it should face fewer regulatory roadblocks on the Chinese side,”said Shen. “In the US, the key question is whether the deal can create more jobs.”

(This story has been corrected to remove the mention of Yili being a state-owned company, in the third paragraph.)

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