China Mengniu Dairy to buy remaining stake in China Modern Dairy for $826 mn

China Mengniu Dairy Co Ltd yesterday struck a deal to buy the remaining shares it does not already own in China Modern Dairy Holdings Ltd for $826 million in order to secure long-term premium milk supply.

The move comes a few days after China Mengniu acquired 965.47 million shares in Modern Dairy for HK$1.94 each from a joint venture of KKR China Growth Fund and CDH Fund IV.

This purchase raised its stake in Modern Dairy to 39.9 per cent from its current 25.4 per cent, and under Hong Kong's regulatory rules if the holding crosses 30 per cent then the stake holder has to make a mandatory offer to buy the remaining shares.

China Mengniu has now offered to buy the remaining shares of China Modern Dairy at HK$1.94 each, or HK$6.4 billion ($826 million), taking its total stake to 91 per cent.

Post closing, China Modern Dairy will still be listed on the Hong Kong Stock Exchange since some of its shareholders, including its CEO, Lina Gao, have decided not to sell their stake, according to the press release.

In May 2013, China Mengniu offered to buy 26.92-per cent stake in China Modern Dairy for HK$3.18 billion ($409 million) in order to provide the group with a stable source of premium milk supply. (See: Mengniu Dairy to acquire stake in Modern Dairy for $409 mn) Mengniu Dairy is China's second-largest dairy producer 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.

Modern Dairy is the largest dairy farming company in terms of herd size as well as the largest raw milk producer in China.

Its primary business is raising dairy cows and selling raw milk to branded dairy companies for processing into consumer dairy products. Modern Dairy was founded in 2005 and built its first farm in 2006.

Modern Dairy operates 22 dairy farms in Anhui, Heilongjiang, Hebei, Shandong, Shaanxi, Sichuan, Inner Mongolia, and Hubei provinces and has total production capacity of over 700,000 tonnes of raw milk per year.