China Mengniu Dairy to buy infant formula maker Yashili for $1.6 bn

China Mengniu Dairy Co today said that it would buy local infant formula maker Yashili International Holdings Ltd, for HK$12.5 billion ($1.6 billion).

Mengniu Dairy, China's largest dairy producer, is now buying a controlling 75.3-per cent stake from Yashili's chairman Zhang Lidian's family and US private equity firm Carlyle Group, and buy the rest of the company at HK$3.50 a share in cash, a 5 per cent premium to Yashili's last trading price.

Zhang Lidian's family, through their investment vehicle, Zhang International Investment Ltd, will continue to hold 10-per cent of Yashili.

The move comes a month after Mengniu Dairy acquired 26.92-per cent stake in China Modern Dairy Holdings Ltd, for $409 million, in order to secure long-term premium milk supply. (See: Mengniu Dairy to acquire stake in Modern Dairy for $409 mn)

''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,'' said, Sun Yiping, CEO of Mengniu.

Founded in 1983, Guangdong province-based Yashili is a leader in China's paediatric milk formula industry, and also holds a leading position in the soymilk powder market.

It has two well recognised brands, under which various product series are sold targeting different consumer segments. It also sells four types of nutrition food, soymilk powder and paediatric rice flour under Yashily brand, cereal under Zhengwei brand as well as milk powder for adults and teenagers under Youyi brand.

It has sales network of more than 1,500 regional distributors, more than 105,000 retail outlets and manufacturing plants in Guangdong, Shanxi and Heilongjiang provinces.

Yashili posted net income of 468 million yuan in 2012 on revenues of 3,655 million yuan.

Mengniu Dairy is one of the leading dairy product manufacturers in China, with Mengniu as its core brand. The company's products range includes liquid milk products, such as UHT milk, milk beverages and yogurt, ice cream and other dairy products such as milk powder.

Mengniu's liquid milk products ranked first, in terms of sales volume and sales value, among similar products in China in 2012, according to China Industrial Information Issuing Centre.

In 2011,the company found excessive levels of a cancer-causing toxin in its milk, the latest in a series of tainted milk scandals that have hit China in recent years (See: Toxins found in milk from China's largest dairy). Earlier in 2008 Mengniu was among the 22 other dairies in China involved in the melamine-contaminated infant milk scandal that forced the head of China's quality department to resign (See: China's quality chief resigns over toxic baby-milk scandal).