Fonterra To Acquire 20% Stake In PE-Backed Beingmate

New Zealand dairy firm Fonterra Limited plans to acquire a 20% stake of Hangzhou-based infant formula manufacturer Beingmate, in an attempt to gain greater foothold in China’s dairy industry that has been rocked by scandals in the past few years, according to a joint announcement.

Specific deal terms were not disclosed.

After the minority stake acquisition is completed, the two parties also plan to establish a joint venture with $A200 million (US$187.4 million) in capital to purchase Fonterra’s Darnum plant in Australia and a distribution agreement for Beingmate to sell Fonterra’s Anmum brand in China.

Beingmate, founded in 1992, will hold 51% stake of the Australian dairy plant, and Fonterra will take the rest.

The two parities aim to create a fully integrated global supply chain from the farm gate direct to China’s consumers, using Fonterra’s milk pools and manufacturing sites in New Zealand, Australia, and Europe.

“The infant formula market in China is worth about NZ$18 billion (US$15.09 billion) today and is expected to be worth NZ$33 billion (US$27.67 billion) by 2017," says Fonterra chief executive, Theo Spierings. "This growth is driven by increasing urbanization, higher disposable incomes, a preference for premium brands, and relaxation of the one child policy."

Beingmate, backed CICC Private Equity, Pingan Caizhi Investment Management and CEL Venture Capital, has seen its adjusted net profit for the first half year of 2014 slumped by about 80% to RMB84.2 million, due to the sluggish customer demand for its products, according to its financial report.

Both Chinese and Western private equity firms and investors have been scrambling to strike deals in the Chinese dairy industry, hoping to capitalize on the increasing demand of high-quality dairy products in the country.

In early June, Chinese private equity firms Yunfeng Capital and CITIC Private Equity Funds Management (CITIC PE) agreed to invest at least RMB2 billion (US$320 million) in a unit of Chinese dairy firm Inner Mongolia Yili Industrial Group Co. Ltd.

In March, Hong Kong-listed Fosun International agreed to acquire a 20.45% of Beijing-based dairy firm Sanyuan Foods Co., Ltd. for RMB$2 billion ($325 million). In February, Hong Kong-based Asian private equity firm RRJ Capital agreed to invest US$250 million in Shanghai-based Bright Dairy & Food Co., Ltd.

Last November, Hong Kong-listed Chinese dairy firm Yashili International Holdings Ltd. says that Temasek Holdings, Hopu Investment Management Co. and three private investors will buy a 13.24% stake of the company from China Mengniu Dairy for HK$1.6 billion ($213 million).

Last September, Kohlberg Kravis Roberts & Co. and CDH Investments formed a joint venture with Modern Dairy to build two large-scale dairy farms in China.

China Expert network