By Donny Kwok and Stephen Aldred
HONG KONG, June 18 China Mengniu Dairy Co Ltd
signed a second takeover deal in a month on Tuesday,
offering to buy Carlyle-backed Yashili International Holdings
Ltd in a deal worth about HK$12.5 billion ($1.6 billion) as part
of a plan to expand its milk powder business.
The deal with Yashili, which sources all of its
products from New Zealand, marks the latest step by China's milk
industry to consolidate the market after several tainted milk
scandals tarnished the fragmented sector.
It is also the second time since May that a U.S. private
equity firm has exited a lucrative investment in a Chinese milk
Mengniu is offering HK$3.50 in cash to Yashili's
shareholders, which includes the Carlyle Group and Yashili's
chairman. The buyer is offering a second option of HK2.82 in
cash per share and 0.681 per share in a Mengniu-backed
acquisition holding company, according to a statement to the
Hong Kong stock exchange.
For Mengniu, which also recently announced an investment by
French dairy group Danone, the purchase will strengthen its
foothold in the milk powder segment, which currently contributes
less than 2 percent of its revenues.
Mengniu, twice hit by accusations it sold tainted milk,
agreed last month to buy 26.92 percent of China Modern Dairy
Holdings Ltd from private equity firms KKR & Co LP and
That deal allowed Mengniu, whose liquid milk products rank
first in China by sales volume, to ensure control over its milk
supplies and win confidence among consumers in a market that is
growing at about 20 percent a year.
KKR nearly tripled its original investment in Mengniu from
the sale, a person with direct knowledge of the matter told
Reuters at the time.
Based on the offer price, Carlyle's stake in Yashili is
worth $388 million, or nearly two times its original investment
in 2009. Yashili shares were halted at HK$3.33 last Thursday, up
63 percent this year.
China's infant formula market is expected to grow to $25
billion by 2017, Euromonitor data shows, as more mothers join
The fatal milk scandal in 2008 involved substituting a
chemical into infant formula to increase profits on the product.
The melamine-laced milk killed six babies in China and sickened
Other tainted milk scandals have emerged since, which has
hammered demand for domestic producers.
Chinese companies are now espousing foreign safety standards
- Bright Dairy and Food Ltd, for example, also
sources raw materials from New Zealand.
Trading in shares of Mengniu, based in Inner Mongolia, and
Yashili were suspended in Hong Kong last week.
Liquid milk products contributed 89.6 percent of Mengniu's
36.08 billion yuan revenue in 2012, ice cream products 8.8
percent and milk powder products 1.6 percent.
Mengniu teamed up with Danish-Swedish dairy group Arla Foods
in June last year to develop dairy products in China,
in another bid to regain consumer confidence.
Last month, Mengniu struck a deal with France's Danone, the
world's largest yoghurt maker. The deal involves the creation of
a joint venture between Danone and state-owned Chinese food
enterprise COFCO, Mengniu's biggest shareholder.
Danone will also set up a joint venture with Mengniu for the
production and sale of yoghurt in China. Danone will own 20
percent of the business.
Hong Kong-listed Yashili International, with a market value
of $1.5 billion, is 52.19 percent controlled by a holding
company controlled by Chairman Zhang Lidian and 24.39 percent
owned by Washingon D.C.-based Carylyle, one of the largest
private equity firms in the world.
Mengiu is 19 percent-owned by China's state-backed
agricultural and food industry supplier COFCO.
UBS was the lead financial adviser to Mengniu, according to
the stock exchange statement. HSBC and Standard Chartered also
advised the company.