China Mengniu Dairy Co. (2319), the country’s largest dairy producer, agreed to buy a 26.9 percent stake in China Modern Dairy Holdings Ltd. (1117) for HK$3.18 billion ($409 million) to gain greater control of milk supplies.
Mengniu will pay HK$2.45 a share for the Modern Dairy stake, the company said in a filing to Hong Kong’s stock exchange today. That’s 12 percent less than Modern Dairy’s closing price yesterday.
Acquiring the shares in Modern Dairy, a producer of raw milk, will give Hohhot, Inner Mongolia-based Mengniu more control of its supplies as concerns about safety in China’s dairy industry linger. Police in March detained a distributor suspected of repackaging and selling milk powder made by Swiss company Hero Group that wasn’t licensed for sale in China, the official Xinhua News Agency reported at the time.
Mengniu said in its statement that the investment in Modern Dairy is consistent with its strategy of enhancing “the quality of its milk sources and securing long-term premium milk supply.”
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