Most costly takeover boosts China's dairy restructuring

BEIJING - China Mengniu Dairy Co Ltd has signed a deal to buy Yashili International Holdings Ltd for over HK$11 billion ($1.42 billion), marking the most costly merger in China's domestic dairy sector, China Securities Journal reported Wednesday.

The purchase on Tuesday afternoon was deemed part of the restructuring of the Chinese dairy industry that is being promoted by the central government.

China's Ministry of Industry and Information Technology (MIIT) brought together 127 dairy enterprises for a conference on Tuesday that drew up measures to improve the quality of dairy products and recover consumer confidence in the scandal-plagued sector.

Gao Fu, assistant inspector of the MIIT's consumer goods department, said the State Council, or China's Cabinet, had urged the MIIT to encourage mergers and restructuring among infant formula companies.

"The MIIT plans to help integrate 10 dairy groups with annual sales worth over 2 billion yuan in the next two years," Gao said.

By the end of May 2013, China had 127 baby milk-producing enterprises with a total output of 600,000 tons, and only three of these companies can produce over 30,000 tons every year, according to China Securities Journal.

The ministry promoted the restructuring to weed out incompetent producers, so as to upgrade the whole dairy industry, Gao added.

Mengniu offered to acquire 75.3 percent of Yashili's stakes, with HK$3.50 in cash per share, or HK$2.83 in cash plus 0.68 of a share in an acquisition vehicle, a private entity 100-percent owned by Mengniu, said a statement filed to the Hong Kong stock exchange on Tuesday.