China Feihe, whose baby milk formula is endorsed by film star Zhang Ziyi, has offered HK$3.07 billion (US$398.68 million) to take over its supplier YuanShengTai Dairy Farm, according to a joint stock exchange filing on Sunday.
The deal marks the biggest expansion move by the Beijing-based Feihe, whose name means the "flying crane" in Chinese, since its listing in Hong Kong in November last year when it raised HK$6.7 billion (US$856 million).
Through the takeover, Feihe "will be able to secure stable supply of high-quality fresh milk from [YuanShengTai] to satisfy consumers' growing demand for its infant milk formula products," the joint announcement said.
Feihe has purchased fresh milk from YuanShengTai to produce its baby milk formula products since 2010. The farming company's quality management expertise will also help Feihe to improve quality control when buying raw milk from other smaller dairy farmers, the filing said.
The offer price of HK$0.63 per share represents a premium of 1.6 per cent over YuanShengTai's last trading price on Thursday and a 17.5 per cent premium on its average trading price of the past 30 days. YuanShengTai was suspended from trading on Friday pending the announcement, and plans to resume trading on Monday.
Feihe intends to use its internal resources to finance the deal. Its financial adviser CLSA Capital Market indicated the milk company has sufficient resources to settle the offer. Feihe plans to keep YuanShengTai as a listed company in Hong Kong and will retain at least 25 per cent of the farming company's shareholding to be owned by public shareholders.
Feihe produces its products in Heilongjiang province, also home to YuanShengTai's headquarters which has more than 10,000 cows.
YuanShengTai, which means "organic living", said the offer would give its shareholders a good chance to cash in, because of its low turnover since its listing in 2013.
Feihe's shares last closed at HK$16.48 on Friday, more than twice their IPO price of HK$7.5 in November.
After the announcement, Feihe fell 1 per cent to close at HK$16.32 on Monday, while YuanShengTai droped 1.6 per cent to HK$0.61.
The company hired Zhang, who turns 42 next February, as a brand ambassador who would resonate with parents who dote on their children. The actress, who gained global fame with her roles in the hit movies Crouching Tiger, Hidden Dragon and Rush Hour 2, has two young daughters.
Founded in north-eastern China's Heilongjiang province in 1962, the company has the biggest market share for baby milk formula and infants' milk products in the world's most populous nation, with 15.6 per cent of the market as of 2018, according to research firm Frost & Sullivan.
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