Morgan Stanley to complete $147m China dairy take-private

The chairman, You-Bin Leng, and an affiliate of Morgan Stanley Private Equity Asia III will pay $7.40 per share for all outstanding shares not currently owned by Leng. It represents a premium of 21.3% to Feihe's last closing price before the offer was announced on October 3, 2012. Shareholders, including the chairman, who are rolling their holdings into the acquisition vehicle control about 41.3% of the company.

The transaction will be funded with $36.26 million in equity - $28.1 million from MSPEA and the rest from Leng - and a $50 million term loan facility from Wing Lung Bank and Cathay United Bank.

Assuming shareholders vote in support of the deal, it will also see Utah-incorporated Feihe restructured as a Cayman Islands entity, which would ultimately make it easier to re-list the company on another bourse, especially Hong Kong.

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. In 2009, Sequoia Capital invested $63 million in the company but enforced a buyback option two years later.

Feihe posted a net profit of $7.5 million for the three months ended September 30, 2012, up from just $1 billion the previous year. On a nine-month basis, earnings were up more than 100% year-on-year at $21.6 million.

Between April 2010 and November 2012, a total of 49 take-private transactions were announced, according to Roth Capital Partners, with 19 reaching a close, four terminated and 26 in process. The last 12 months have seen significant activity: 10 deals were underway at the start of 2012, rising to 20 by the end of it. Five private-equity backed deals have closed and AVCJ has records of 12 still in progress, eight of which were announced in the second half of 2012.

MSPEA is also pursuing a take-private for Yongye International in partnership with company management and Abax Global Capital.

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