China Mengniu Dairy has agreed to acquire China Modern Dairy (CMD) for HK$6.4bn ($826m) to consolidate its position in the high-end dairy products sector.
As part of the deal, China Mengniu will buy 965.47 million shares in CMD from a joint venture of KKR China Growth Fund and CDH Fund IV to increase its stake to 39.9% from the existing 25.4%.
Later, Mengniu in accordance with the Hong Kong's corporate rules can propose an offer to buy out the remainder of the shares outside its ownership.
Through the acquisition, Mengniu said that it is looking to secure high quality and stable raw milk supply with CMD being the largest dairy farming business as far as the herd size is concerned.
Mengniu further added that with CMD being the largest producer of raw milk in China, its acquisition will help it in focusing on high-end dairy products to meet increasing consumer demand.
Besides, Mengniu is expecting the addition of CMD in its fold to support its innovation in low temperature dairy products owing to the latter’s large scale presence in the country.
The acquisition will also bring geographical advantages with CMD’s farms located in close proximity of significant dairy consumption markets, with some of them also close to Mengniu’s downstream processing facilities.
A joint statement from the companies read: “Through the Transaction, Mengniu Group will be able to drive improved performance and strategic development of CMD Group in line with Mengniu Group’s future growth plans.
“This in turn will provide strong support for the growth of Mengniu Group’s low-temperature dairy production, strengthening Mengniu Group’s leading position in the low-temperature dairy market.”
After the close of the deal, Mengniu will look to continue the existing core business of CMD and will later review its business operations and financial position to formulate a long term strategy.
