China Mengniu Dairy struck its third major deal in two months yesterday, paving the way for the company, the country's largest dairy producer by sales volume, to expand into the baby formula segment.
Mengniu, with products ranging from milk to yogurt and ice cream, is buying a 75.3 per cent stake in the Hong Kong-listed formula maker Yashili International from chairman Zhang Lidian's family and American private equity firm Carlyle, a filing with the Hong Kong stock exchange said.
The vendors can sell their shares for HK$3.50 each in cash, about 9.4 per cent higher than the closing price last Thursday, or opt for a combination of cash and shares. Shares of Mengniu and Yashili resume trading today.
David Chin, head of Asia investment banking at UBS, Mengniu's lead adviser, said the firms' distribution channels do not overlap, and Mengniu hopes eventually to supply its raw milk to Yashili, which currently gets all its raw milk from New Zealand.
Mengniu said it plans to introduce expertise to develop Yashili into an international brand of paediatric milk powder.
Chin declined to provide details of Mengniu's financing plan, but he did not rule out the possibility of further fund-raising in the capital market.
Mengniu formed a joint venture late last month with Danone that will allow the French yogurt maker to widen its access to the mainland consumer market while the Chinese firm gains from the foreign brand's reputation for safety and quality.
Early last month, Mengniu increased its stake in China Modern Dairy, its latest supplier of raw milk, spending US$407 million to buy additional shares from the private equity firms CDH Investments and KKR.
The company is taking greater control of raw supplies to try to ease consumers' fears after quality and safety scandals.
Premier Li Keqiang has urged strict market supervision and tough penalties to ensure food safety, as persistent problems have triggered public concern over the authorities' ability to deal with the issue.
Mengniu was implicated in a notorious food scandal in 2008. At least six infants died and around 300,000 babies fell sick after they were given to drink milk powder contaminated with melamine.