By Prudence Ho and Yvonne Lee
HONG KONG--China Mengniu Dairy Co. Ltd. (2319.HK) is buying a
majority stake in smaller rival Yashili International Holdings Ltd.
(1230.HK), which has market capitalization of US$1.5 billion, in
the latest move by the mainland milk giant to bulk up its stakes in
Chinese dairy firms.
Mengniu, one of the dairy companies whose baby formula was found
to have contained the industrial chemical melamine in the 2008
tainted-milk scandal in China, is buying a stake in Yashili that
will trigger a mandatory offer for shareholders in the Hong
Kong-listed company. Yashili, which specializes in making baby
formula, is 24.4% owned by U.S. private equity firm Carlyle Group
L.P. (CG)
Carlyle declined to comment.
Last month, Mengniu increased its stake in China Modern Dairy
Holdings Ltd. (1117.HK), to 28% from 1% by buying shares from
companies controlled by private equity firms CDH Investments and
Kohlberg Kravis Roberts & Co. Unlike Yashili, which makes milk
powder, Modern Dairy is involved in the farming side of dairy.
Shares of Mengniu, whose main shareholder is China's largest
state-owned food firm, Cofco Corp., and Yashili have been suspended
from trading since Thursday last week. The companies plan to
release a statement on the deal sometime Tuesday.
According to a research report by Chinese brokerage Oriental
Patron, Yashili was the seventh-largest infant-formula maker in the
country in 2012, with a 4.3% market share. Mead Johnson Nutrition
Co. (MJN) of the U.S., maker of products such as Enfamil baby
formula, had a 12.9% market share and was the single-largest
company in the infant formula market in China.
Mengniu began manufacturing dairy products in China in 1999,
producing liquid milk products, milk drinks, yogurt, ice cream,
milk powder and cheese. The 2008 tainted-milk scandal--where
traders and processors watered down milk and added toxic melamine
powder--caused the death of at least six babies, and pushed
distrustful consumers to turn to imported milk. Since 2008, the
Chinese government pushed for an overhaul of the milk industry and
promoted the growth of big farms.
Write to Prudence Ho at prudence.ho@wsj.com and Yvonne Lee at
yvonne.lee@wsj.com
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