Following the purchase of Shengmu high tech dairy in January this year, Mengniu turned its attention to the upstream milk source of organic milk.
China’s Shengmu announced last night that it acquired 1.197 billion shares of Mengniu Dairy’s wholly-owned subsidiary at HK $0.33 per share, involving a capital of HK $395 million (about RMB 357 million). After the deal is completed, Mengniu’s shareholding will rise from 3.83% to 17.80%, becoming the single largest shareholder of China’s largest organic dairy company.
In response to this, Mengniu said in response to the inquiry of xiaoshidai today that the increase was realized through the exercise of warrants obtained at the end of 2018. “Mengniu is optimistic about the organic milk market for a long time, attaches importance to the distribution of high-quality organic milk sources, and increases its holdings in line with the company’s strategy.”
Affected by the good news, China’s Shengmu stock price rose sharply at the beginning of the day, with the highest rise of more than 145%. It closed at HK $0.42, up 75%.
In fact, Mengniu’s move is not unexpected.
As early as the end of December 2018, Mengniu planned to purchase 51% equity of Shengmu high tech Dairy Co., Ltd., which is engaged in the production, processing and sales of dairy products under China Shengmu, as early as the end of December 2018. In January this year, Mengniu once again took the remaining 49% equity of Shengmu Gaoke Dairy Co., Ltd. at the price of 8 million yuan, and completely took over the latter.
Through the above two transactions, Mengniu obtained all downstream dairy business chain of Shengmu Gaoke dairy, including the production and distribution of liquid milk business. China Shengmu has stripped off its downstream dairy business and focused on dairy farming.
The snacks generation learned that the organic dairy products of Mengniu include terenzo organic milk, Mengniu future star children’s organic milk, and organic fresh milk of daily Xianyu desert.
Through this increase in holdings of China Shengmu, Mengniu on the one hand hopes to expand its competitive chips to the upstream link and further open up the upstream and downstream industrial chain of organic milk. On the other hand, by increasing its holdings in Shengmu, Mengniu also consolidated its overall layout and advantages in terms of milk source. Before that, Mengniu had invested in modern animal husbandry and Fuyuan animal husbandry and other upstream milk sources.
In fact, in May this year, Mr. Lu Minfang, President of Mengniu Group, talked about his thinking on the M & a strategy, pointing out that M & A is based on “strategic drive”.
As for Mengniu’s investment in modern animal husbandry, Shengmu organic milk and Fuyuan animal husbandry, Lu Minfang described them as “strategic driven forward-looking investment”. If the enterprise comes back to the market, “it may cost more than twice as much.”.
On June 14 this year, China Shengmu issued a positive profit forecast, saying that according to the preliminary comprehensive management accounts not audited as of May 30, 2020 and the data currently available to the comprehensive board of directors, the company is expected to record a comprehensive profit of no less than 130 million yuan for equity holders in the first half of this year. In the first half of last year, the company recorded a loss of about 73.5 million yuan.
Novel coronavirus is also affected by the new coronavirus epidemic in the first half of this year, but it benefits from the company’s focus on improving internal management, raising the cost of raising cattle and reducing costs, and China’s 12 livestock companies’ operation control rights at the end of 2019, and the integration of resources to maximize operational benefits. Some people should take up a large proportion of the comprehensive profits.
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