China Mengniu Dairy has agreed to buy 26.9% stake in local rival China Modern Dairy in a deal worth US$410m, as it looks improve the security of its milk supply.
The deal, which has been rumoured for some time, will see Mengniu increase its shareholding from around 1% to 28%, making it the largest shareholder in the firm. It acquired the stake from Advanced Dairy Co and Crystal Dairy Holdings, controlled by private equity investors KKR and CDH, respectively.
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Mengniu CEO Sun Yiping said the acquisition of the stake is to secure both quality and quantity of raw milk sources, as well as further capitalise on its “competitive edge” in high-end milk source.
“Meanwhile, accelerating and expanding investments in quality farms will allow Mengniu to establish a safer and more stable value chain in the dairy sector, to provide healthier and better quality dairy products to consumers,” Yiping said.
Late last month, Mengniu said there had been informal talks with a Hong Kong-traded company engaged in the dairy farming business about the acquisition of certain assets but did not name the company. At the same time Modern Dairy moved to reassure shareholders that rumours related to a possible acquisition of the company were unfounded.
Mengniu was one of around 20 companies implicated in the melamnine scandal in China, when the lacing of milk with the industrial chemical melamine killed around six children and sickened nearly 300,000 people.
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By GlobalDataLast year it teamed up with Arla Foods in a deal that saw the Danish-Swedish dairy co-operative become a shareholder in Mengniu. The two companies sell a “full range of dairy products” in the market.
In June last year, the company also announced plans to build between eight and 12 dairy ranches in China to ensure product quality.
