China Modern Dairy Holdings Ltd saw its shares surge almost 10 percent on Thursday [5 January 2017], after China Mengniu Dairy Co Ltd announced an offer to buy it out in order to guarantee its stable supply of raw milk. Hong Kong-listed China Mengniu on Thursday offered to buy 965.47 million shares in Modern Dairy at HK$1.94 apiece (25 cents), thus raising its stake in the latter from current 25.4 percent to 39.9 percent. The total value of the transaction was HK$1.87 billion…Full Article: ECNS.cn Jan 2016

Key Point

  • In 2008, China Mengniu Dairy signed a 10-year raw milk supply off-take agreement with China Modern Dairy. According to a representative of UOB-Kay Hian Hong Kong (investment banking), China Mengniu Dairy’s proportion of raw milk supply from China Modern has decreased from approximately 90% to 70% recently.

ChinaAg Comments

  • From January to June 2016, China Mengniu Dairy’s recorded a net profit decline. The decline was partially due to losses from China Modern Dairy and a decline in raw milk prices. China Mengniu Dairy had a 25.41% stake in China Modern Dairy at the time.
  • In November 2015, the Mengniu-Yashili plant in Pokeno (near Auckland), New Zealand, opened after a three year construction process.  The factory has an annual production capacity of 52,000 MTs and was slated to begin exports to China in early 2016.
  • In June 2013, China Mengniu Dairy agreed to purchase a majority stake in Yashili International for over HK$11 billion ($1.42 billion). Mengniu bought its 75% stake in Yashili from chairman Zhang Lidian’s family and from the Washington DC-based Carlyle Group (private equity firm).
  • In May 2013, Kohlberg Kravis Roberts (KKR) divested of its 27% stake in Modern Dairy to China’s Mengniu Dairy.
  • Founded in 2005 and headquartered in Ma’anshan, Anhui Province. China Modern Dairy (HKG:1117) is China’s leading raw milk producer. The Beijing-based private equity firm, CDH Investments, has invested in both China Modern Dairy and China Mengniu Dairy.
  • Founded in 1999 and headquartered in Hohhot, Inner Mongolia Region, China Mengniu Dairy (HKG:2319) is one of the leading dairy product manufacturers in China, with “MENGNIU” as its core brand. In addition to milk, the company also produces and distributes ice cream, infant formula, yogurt, and cheese.

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