In a joint statement filed with the Stock Exchange of Hong Kong, the Chinese dairies announced they had entered into an agreement that if completed will see Yashili acquire the “entire equity interest” in Oushi Mengniu for RMB 1.05bn (US$165m) cash.
If satisfied following a period of due diligence, Yashili will assume control of the business.
“Upon completion, Oushi Mengniu will become an indirect wholly-owned subsidiary of Yashili and accordingly, the assets, liabilities and financial results of Oushi Mengniu will be consolidated into the financial statements of Yashili,” the joint statement reads.
Oushi Mengniu, a wholly owned subsidiary of Chinese dairy giant Mengniu, manufactures and markets infant formula products and milk powder products for adults.
It reported sales of RMB 724m ($113m) for the year ended December 31 2014, and profit of RMB 79m ($12.4m) – up from losses of RMB 28 ($4.4m) in 2013 and RMB 237m ($37.1m) in 2012.
Through the deal Yashili expects its market share to increase and competition with its parent company, Mengniu, to reduce.
Mengniu, China’s second largest dairy processor, currently holds a 51.4% interest in Yashili.
A further 25% stake in Yashili is controlled by French dairy giant Danone.
Earlier this year, Danone announced it had reached a “preliminary agreement” with Yashili on the sale of its infant formula business, Dumex China.
As detailed in a Memorandum of Understanding (MOU) signed by Danone, Yashili and Mengniu in July, the French dairy will use proceeds from the proposed sale of Dumex China to increase its 9.9% interest in Mengniu.