China Mengniu Dairy has agreed to acquire 75.3% stake in infant formula manufacturer Yashili, from chairman Zhang Lidian's family and Carlyle Group, for HK$12.5bn ($1.6bn).
As part of this transaction, Yashili's controlling shareholders, Zhang International and CA Dairy, a company wholly owned by Carlyle Asia Partners and CAP III Co-investment, have irrevocably undertaken to accept the offer. Zhang International and CA Dairy together hold 75.3% stake in Yashili.
Under the agreement, a Yashili shareholder will have a choice of either accepting HK$3.5 ($0.45) in cash; or HK$2.82 ($0.36) in cash and 0.681% stake in a private company set up by Mengniu for the sole purpose of holding shares in Yashili ('SPV Shares').
The offer price of HK$3.5 ($0.45) per share represents a premium of approximately 9.4% over the closing price of HK$3.2 per share on the last trading date prior to the stock suspension on 13 June.
Mengniu plans to fund the proposed acquisition from external financing.
Following the transaction, which is subject to customary conditions and Mengniu's shareholders approval, Zhang International is expected to retain 10% attributable interest in Yashili.
In addition, Mengniu plans to operate Yashili as an independent operating platform and introduce expertise both from Mengniu and international partners to enable Yashili to develop into a more internationalized pediatric milk formula brand in the future.
Mengniu chief executive officer Sun Yiping said that this transaction will have an enormous strategic significance to the shareholders of both companies.
"With the huge room for growth in China's pediatric milk formula market, the partnership with Yashili, one of the most successful milk powder brands in China, will greatly strengthen both companies' business platform to offer consumers with more choices in dairy products that are safe, healthy and of
highest quality."
UBS has been appointed as the lead financial adviser, and HSBC and Standard Chartered have been appointed as joint financial advisers, to assess Mengniu for the contemplated transaction.
Yashili, established in 1998, is one of the leading pediatric milk formula producers and retailers in China, under the Yashili and Scient milk powder brands. The company reported income of CNY3.6bn ($592.5m) and a net profit of CNY468m ($75.8m).
Mengniu Dairy is primarily involved in manufacturing and distribution of dairy products including liquid milk products, such as UHT milk, milk beverages and yogurt, ice cream and other dairy products such as milk powder.
