China Mengniu Dairy Co. has tabled a takeover bid worth around HK$11.35bn (US$1.46bn) to take full control of local infant formula maker Yashili International Holdings.

Mengniu is offering HK$3.50 per share in cash, or a cash-and-share option of HK$2.82 in cash and 0.681 share in the “offeror”, which is “a private company set up by the offeror parent for the sole purpose of holding shares in the target”.

The cash option represents a premium of approximately 9.4% over the closing price of HK$3.20 per share last Wednesday (12 June), the day before trading was halted for shares of both Mengniu and Yashili.

In a joint statement to the Hong Kong stock exchange today (18 June), the dairy firms said two of the Yashili’s largest shareholders – Zhang International and CA Dairy – have already accepted Mengniu’s offer, giving the company control of 75.3% of outstanding Yashili shares.

Mengniu is now extending its offer to other shareholders as it looks to take 100% control of the group.

The takeover is dependent on approval from Mengniu shareholders as well as relevant authorities in China, Hong Kong, Cayman Islands and the British Virgin Islands.

Mengniu intends to finance the entire total consideration from external financing, the group said.

Commenting on the move, Sun Yiping, Mengniu CEO, said the tie-up would provide Mengniu with the opportunity to expand in the infant formula market, while also improving the availability of safe and reliable infant formula products.

“With the huge room for growth in China’s paediatric milk formula market, the partnership with Yashili, one of 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.”

She added: “It will generate important synergies for the development of the two companies, thereby capture the rapid growth of pediatric milk formula market in China.”

Yashili will continue to operate as a stand-alone business unit, but Mengniu will “introduce expertise” from within its own company, as well that as its international partners, to “develop into a more internationalised paediatric milk formula brand,” Yiping said.

Mengniu is working in partnership with Europe-based dairies Arla Foods and Danone. Arla is also working as an advisor to the Chinese authorities as the government works to improve food safety in the country.

Since the melamine scandal of 2008, when six babies died due to contaminated formula, the government has moved to tighten regulations and step up testing in the dairy sector. However, the plethora of dairy companies operating in the sector is frequently viewed as a barrier to improved safety standards.

According to local reports, the Chinese government has scheduled a meeting of infant formula manufacturers today, when it is believed it will push for consolidation in the sector.