Morgan Stanley supports Feihe International MBO bid

The chairman, You-Bin Leng, and an affiliate of Morgan Stanley Private Equity Asia III, a $1.48 billion fund, are willing to pay $7.40 per share for all outstanding shares not currently owned by Leng. It represents a premium of 21.3% to Feihe's October 2 closing price and a 44.1% premium to its volume-weighted average price over the last 180 trading days. Leng has a 45.34% stake in the company.

The investor consortium is "highly confident" of securing a $50 million loan facility from Wing Lung Bank to support the acquisition. Leng will contribute equity financing while MSPEA will put in cash.

Feihe International operates through its Beijing-based wholly owned subsidiary Feihe Dairy, which was set up in 1962. It has more than 200 company-owned milk collection stations, six production facilities with an aggregate milk powder production capacity of about 2,020 tons per day, and a distribution network that reaches over 80,000 retail outlets throughout China.

The company was one of the first to go public in the US via a reverse takeover in 2003. It came to prominence for a brief period following the melamine scandal in 2008 - when tainted milk products claimed the lives of six infants and hospitalized hundreds more - as one of few Chinese dairy companies not implicated in the scandal.

More recently, concerns have been expressed about health of Feihe's business. Sequoia Capital invested $63 million in the company in 2009, with an option to require a repurchase of its shares in certain circumstances. Two years later, Feihe bought back the VC firm's holding at cost plus $2 million in interest charges.

Feihe posted a net loss of $1.2 million in 2011, although this was an improvement on the $9.6 million deficit recorded the previous year. The stock jumped 9% to $6.66 on the announcement of the takeover bid, but it remains down 84% on its June 2009 peak of $42.30.

A host of US-listed Chinese companies have been subject to take-private offers from management teams disillusioned with stock performance. The ultimate goal is to re-list companies on Asian exchanges. Prior to Feihe, 37 China take-privates had been announced, completed or terminated since 2010, according to Roth Capital Partners. PE investors were involved in four of the 14 completed deals and four of 18 that are ongoing.

MSPEA can claim some past experience in this area, albeit not with a US-listed target. The PE firm took Sihuan Pharma private in Singapore in 2009 and listed the company in Hong Kong a year later.

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• Topics
• Greater China
• North America
• Buyouts
• Consumer
• buyout
• Morgan Stanley Private Equity Asia
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• China
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