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Mergers & Acquisitions

China’s Yili scraps 4.6bn yuan milk deal after failure to get regulatory approval

Takeover offer made amid keen competition among mainland Chinese milk producers to capture more of the premium segment

PUBLISHED : Friday, 28 April, 2017, 11:41am
UPDATED : Friday, 28 April, 2017, 10:49pm

Inner Mongolia Yili Industrial Group has scrapped a 4.6 billion yuan (US$667 million) takeover of Hong Kong-listed China Shengmu Organic Milk because it failed to get regulatory approval, according to a Hong Kong stock exchange filing on Friday.

Shanghai-listed Yili, China’s leading milk producer, also said it would not proceed with its plan to raise up to 9 billion yuan in a private placement to finance the deal after the offer collapsed.

Yili’s shares closed 3.85 per cent lower at 18.23 yuan in Shanghai, while Shengmu fell by 16.4 per cent to HK$1.63 in Hong Kong on Friday after it resumed trading. Both companies have been suspended from trading since Monday pending the announcement.

In October Yili, via a subsidiary company, announced plans to purchase a 37 per cent stake in Shengmu, the largest producer of hormone-free dairy products in China which meet the European standards for organic milk.

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The takeover offer was made when there was keen competition among mainland Chinese milk producers to capture more of the premium market segment amid a shift to high end products and more healthy food by the rising Chinese middle class.

The deal needed approval from Beijing’s Anti-Monopoly Bureau in order to proceed by the deadline of April 21.

“Since such approval of the declaration of concentration of business operators for transactions from the Anti-Monopoly Bureau of the Ministry of Commerce has not been received...registration approval for the settlement of the consideration outside the PRC cannot be fulfilled,” the companies said in the exchange filing statement.

Yili’s share placement dilutes its near-term earnings but enhances long-term growth, say analysts

Shengmu said the collapse of the deal would not have a negative impact on its business.

“The company is of the view that, although the offer will not proceed, this will not

affect the company’s position as a leading organic milk supplier in the PRC,” it said.

Yili and Shengmu also “emphasise that the termination of the sale and purchase agreements and the lapse of the offers will not have any negative impact on their dealings in the ordinary course of business”.

They said Yili, as a dominant milk player in China, will continue to support the growth and development of the raw milk business of Shengmu.

According to Euromonitor International, Yili is China’s largest dairy producer by retail sales with a 22.3 per cent market share, followed by China Mengniu Dairy (17.3 per cent) and Hebei Yangyuan Zhihui Beverage (5.2 per cent), while Shengmu has a 0.7 per cent share.

The Chinese market for products such as drinking milk, cheese, yogurt and sour milk drinks was worth 350 billion yuan last year.

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