COFCO corporation, China’s biggest agribusiness and food company, announced on July 6 that it would make joint investment with Houpu Investment Management Limited of HKD 6.1 billion to buy 20% shares of Inner Mongolia Mengniu Dairy (Group) Co., Ltd., with the per share price set at RMB 17.6, which is the biggest transaction in China’s food industry to date. The transaction indicates that COFCO will penetrate the diary market with a high profile and that investors hold confidence in rapid development of China’s diary industry, especially in that of such market leaders as Mengniu. It enables COFCO to bring its value chain advantages into play.
COFCO and Houpu will establish a joint venture with 70% shares to be controlled by COFCO. The two parties will buy the 20% shares of Mengniu in proportion to their shareholding in the joint venture. Part of the 20% will be bought from Mengniu’s current shareholders and the other will be newly issued by Mengniu. After the transaction, the joint venture will become Mengniu’s biggest shareholder.
COFCO intends to be Mengniu’s strategic investor in the long term. Three of the 11 board members on Mengniu’s new board of directors will be appointed by COFCO as non-executive, but COFCO will not participate in carrying out Mengniu’s business decisions, make any change to its current management or re-direct its current strategy.
As Mr. Frank Ning, Chairman of COFCO, said, COFCO was the market leader of China’s agri-business and food industry, devoted to the whole value chain development. The diary industry was an important constituent of the food industry. With becoming Mengniu’s biggest shareholder, COFCO laid groundwork to penetrate the dairy market and therefore was enabled to bring its value chain advantages into play. It would add strength to COFCO’s brand portfolio and drove COFCO’s further growth. Through combining COFCO’s great strength and good reputation with Mengniu’s popular brand image and valuable marketing channel, this transaction was believed to generate higher return than expected. And it would also enable COFCO to contribute more to China’s economic growth and a better life of Chinese people.
Mr. Niu Gensheng, Chairman of Mengniu, held the same optimistic view about the transaction. COFCO and Mengniu shared the same mission, i.e., offering healthy and nutritious food. COFCO boasted a globalized customer network, successful food safety control and the value chain advantages, which can help Mengniu lay better groundwork for its food safety and globalization strategy.
According to analysts, this transaction would help COFCO build synergy between its current food brands and the dairy brand on the way and strengthen the whole competitiveness of China’s food industry on the global market.
