China Modern Dairy Shares Hit Two-Month High After Securing Control of Shengmu

Shares of China Modern Dairy Holdings Ltd. (HK:1117) surged to a more than two-month high on Tuesday after the company's mandatory cash offer for China Shengmu Organic Milk Ltd. (HK:1432) became unconditional, securing it a controlling stake in the rival dairy producer.

Market Reaction

China Modern Dairy's stock climbed 7.8% to close at HK$1.24, its highest level since May 18, according to market data. The rally significantly outpaced the broader Hang Seng Index, which was reportedly little changed during the session.

Conversely, shares of China Shengmu slipped 1.4% to HK$0.345, trading just below the acquisition offer price. The divergence in share price movement reflects investor sentiment about the consolidation, with the acquirer's stock gaining favor while the target's price anchors to the offer value.

Offer Details

In a joint filing late Monday, the companies announced that the mandatory cash offer had become unconditional in all respects. This was achieved after shareholder acceptances lifted China Modern Dairy's interest in China Shengmu to 71.5%, comfortably exceeding the 50% acceptance threshold required for the deal to proceed.

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The cash offer values China Shengmu at HK$0.35 per share. According to the filing, the offer will remain open for acceptance until August 31, unless it is revised or extended, allowing remaining shareholders to tender their shares.

Strategic Rationale

The acquisition gives China Modern Dairy majority control over one of China's leading organic raw milk producers. This strategic move is expected to strengthen its upstream milk supply and expand its presence in the high-growth premium dairy segment.

The mandatory general offer was triggered under Hong Kong's Takeovers Code after China Modern Dairy first agreed to acquire an initial stake in Shengmu in May. China Modern Dairy has stated that it intends to maintain China Shengmu's listing on the Hong Kong Stock Exchange following the completion of the offer.