China Mengniu Dairy has agreed to acquire 26.92% stake in China's unpasteurized milk producer Modern Dairy from Advanced Dairy and Crystal Dairy, in a deal estimated to be worth HKD3.18bn ($410m).
Under the terms of the deal, Mengniu Dairy will pay HKD2.45 ($0.31) per share for the Modern Dairy stake.
Currently, Mengniu Dairy owns about 1% stake in Modern Dairy, and with this acquisition it becomes the single largest shareholder with approximately 28% stake.
The transaction is expected to strengthen the cooperation between Mengniu Dairy and Modern Dairy, as well as provide Mengniu with a stable source of premium milk supply.
Advanced Dairy and Crystal Dairy are controlled by private equity investors KKR and CDH respectively, which have acquired stakes in Modern Dairy following the milk controversy in the country in 2008.
Following the acquisition, KKR will own about 3.6% stake in Modern Dairy, while CDH will have 1.5% share.
Mengniu chief executive officer Sun Yiping said the increase of Mengniu's stake in Modern Dairy is intended to secure both quality and quantity of raw milk sources, as well as to further capitalize on its competitive edge in high-end milk source.
"Meanwhile, accelerating and expanding investments in quality farms will allow Mengniu to establish a safer and more stable value chain in the dairy sector, to provide healthier and better quality dairy products to consumers," Yiping added.
Modern Dairy is a leading dairy farming company and raw milk producer in China. It supplies a major portion of its unpasteurized milk to Mengniu Dairy.
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.
