China's Yili Scraps $667 Million Deal for Organic Milk Company

April 28, 2017 10:42 AM
Yili Organic Chinese Milk

Inner Mongolia Yili Industrial Group Co. terminated a planned 4.6 billion yuan ($667 million) purchase of a stake in China Shengmu Organic Milk Ltd. because it didn’t win regulatory approval from Chinese authorities.

The termination also cancels Yili’s offer to buy outstanding shares of Shengmu, according to a statement from the companies to the Hong Kong exchange Friday. Shares of Hong Kong-listed Shengmu and Shanghai-listed Yili, which had been halted April 24, will resume trading Friday, according to the statements. Yili also said it would end its plan to raise as much as 9 billion yuan in a private placement, partly to fund the deal.

A Yili unit announced last October it would purchase a 37 percent stake of Shengmu, the country’s largest producer of hormone-free dairy. Shengmu said it’s the country’s only milk producer currently certified to meet European standards for organic milk.

China’s dairy industry is still struggling to win back the trust of customers after a series of food safety scandals. That’s increased competition between Yili and China Mengniu Dairy Co., for a premium organic segment that makes up just 1 percent of the country’s milk consumption in a $55 billion Chinese dairy market.

The companies said they hadn’t received the required approval of China’s Anti-Monopoly Bureau of the Ministry of Commerce before the agreement’s end date of April 21. The closing date was not postponed by the companies, ending the sale.

Shares of Hong Kong-listed Shengmu have dropped 9.3 percent this year to HK$1.95 through April 24, 13 percent lower than the HK$2.25 per share Yili said it would pay. Shanghai-based Yili shares have gained 7.7 percent in the same period.

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