In a joint statement issued earlier today, the companies confirmed that Zhang International Investment and The Carlyle Group, which own 52% and 24% stakes in Yashili respectively, had “irrevocably undertaken to accept the offer.”
For each share owned, shareholders will have a choice of either HK$3.50 ($0.45) cash or HK$2.82 ($0.36) in cash and 0.681 shares in a SPV Shares – a private company set up by Mengniu to hold shares in Yashili.
Assuming the offer is completed, SPV Shares will hold a controlling 75.3% stake in Yashili.
The deal, which is subject to regulatory and shareholder approval, comes just a month after Mengniu entered into an agreement to become the single largest shareholder of milk producer, China Modern Dairy.
“Capture the rapid growth” of infant formula
Through the deal, Mengniu hopes to take advantage of increasing Chinese consumer demand for infant formula.
“We are pleased to be the controlling shareholder of Yashili,” said Mengniu CEO, Sun Yiping. “This transaction will have an enormous strategic significance to the shareholders of both companies.”
“With the huge room for growth in China’s pediatric milk formula market, the partnership with Yashili, one 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.”
“It will generate important synergies for the development of the two companies, thereby capture the rapid growth of paedatric milk formula market in China," said Yiping.
Share price premium
Rumours regarding a deal between Mengniu and Yashili emerged late last week when both firms suspended trading in their shares.
“At the request of China Mengniu Dairy Company Limited, trading in the shares of the Company was halted with effect from 1.00pm on 13 June 2013 pending the release of an announcement in relations to inside information of the Company,” said a statement issued by Mengniu.
Yashili issued a near identical statement, attributing the halt in share trading to the pending “release of an announcement by the Company that may contain inside information.”
The market capitalisation of Yashili – equivalent to net worth of the company – stood at HK$11.785bn ($1.51bn) when trading was suspended last week – or HK$3.20 per share. Mengniu’s HK$3.50 per share offering exceeds the closing price by approximately 9.4%.