HONG KONG, May 8 (Reuters) – China Mengniu Dairy Co Ltd’s deal to buy a $410 million stake in China’s largest unpasteurised milk producer is a strategic move to rebuild trust after a series of scandals left local brands’ reputations in tatters.
- China Mengniu to boost stake in Modern Dairy for $410 million
- Move designed to ensure quality milk supply
- U.S. private equity firm seen as biggest winner from deal
Mengniu, twice hit by accusations it sold tainted milk, said on Wednesday it would buy 26.92 percent of China Modern Dairy Holdings Ltd from private equity firms KKR & Co LP and CDH Investments. The deal will lift Mengniu’s stake in China Modern to about 28 percent.
For Mengniu, whose liquid milk products rank first in China by sales volume, the purchase is an attempt to ensure control over its milk supplies and win confidence among consumers in a market that is growing at about 20 percent a year.
For KKR, the storied New York private equity firm, the deal is another lucrative transaction following its relatively late arrival in Asia in 2007. After Modern Dairy’s 2010 IPO and the current deal, KKR will have almost tripled its original investment, according to a person with direct knowledge of the matter.
“It is a deal which benefits all parties, of which the private equity funds are seen to be the biggest winner,” Sunwah Kingsway Group Research analyst Steve Chow said.
“Chinese dairy products makers are racing to secure reliable and high-quality raw milk sources, in particular from overseas.”
Mengniu’s main competitor, Inner Mongolia Yili Industrial Group, has gone overseas to secure quality milk. It was granted approval to build an infant milk formula plant in New Zealand last month