HONG KONG-China’s biggest dairy producer on Tuesday placed a $1.6 billion wager that it could win over the trust of parents in the world’s most populous country after a series of scandals involving tainted baby formula.
China Mengniu Dairy said it would offer to acquire Yashili International, one of the country’s leading makers of infant milk formula and baby food, in a deal worth 12.45 billion Hong Kong dollars, or $1.6 billion. The offer price of 3.50 Hong Kong dollars ($0.45) per share represents a 5.1 percent premium over the last transaction in Yashili’s shares before trading in both companies’ stock was suspended on June 13.
In a statement, Mengniu praised Yashili as a ‘‘renowned domestic brand and a leading domestic pediatric milk powder manufacturer in China.’’ It also cited how Yashili’s ‘‘business model integrates high brand recognition, imported premium dairy raw materials and a proprietary formula, and commitment to establish a high standard of quality supervision.’’
Yashili was founded in 1998 in the southern city of Chaozhou by its chairman, Zhang Lidian, and his five brothers, together with their six spouses. The company was one of 22 baby formula producers in China whose products were found by government quality control inspectors in September 2008 to have been contaminated with the industrial plastic melamine, causing kidney- related illnesses in hundreds of thousands of infants and children in China.
Yashili blamed raw milk dealers seeking to artificially boost the measured protein content of their milk. It suspended its production and issued several product recalls, booking total losses of 789.4 million renminbi, or about $130 million at today’s exchange rates, because of the melamine incident.
By 2009, the Zhang family brought in the private equity firm Carlyle Group as a minority investor. In the summer of 2010, with the Chinese public still highly wary of domestic baby formula products, Yashili made a strategic, high- profile decision to start sourcing 100 percent of the raw milk powder used in its formula from overseas suppliers, mainly in New Zealand.
By October 2010, the company was able to convince investors it had reinvented itself, and successfully raised about $350 million in a Hong Kong stock market listing.
Mengniu on Tuesday said it ‘‘envisions no change’’ in Yashili’s raw milk sourcing policy as a result of the deal, ‘‘to ensure that consumers continue to enjoy unchanged quality commitment and brand value.’’
Mengniu said it had already secured irrevocable acceptances for its takeover bid from both the Zhang family, which controls 52 percent of Yashili’s shares, and Carlyle, which has a stake of 24 percent.
Yashili shareholders can choose to accept the 3.50 dollars per share cash payout, or a combination of 2.82 dollars in cash and 0.681 Mengniu shares for each Yashili share they hold.
Mengniu said that if its offer is accepted by at least 90 percent of all Yashili shareholders, it would launch a compulsory buyout of the holdout shareholders and delist the company in accord with Hong Kong stock exchange rules.
UBS, HSBC and Standard Chartered are the financial advisers to Mengniu on the deal.
