Chunhua'S 14 Billion Yuan Capital "Swallows" Mead Johnson China And Three Possibilities Of JUNLEBAO Integration

After half a year's bidding for Mead Johnson in China, the dust finally settled. In the early morning of June 6, Beijing time, lighester group announced that it would sell its infant formula and nutrition business in Greater China to Chunhua capital group for us $2.2 billion (equivalent to about RMB 14 billion).

After the deal is completed, it will retain an 8% stake in the business and is expected to receive $1.3 billion in cash revenue. An informed person who participated in the capital bidding disclosed to the 21st century economic report that the institutional bid for Mead Johnson China was basically between 1.8 billion and 2 billion US dollars. Chunhua capital finally increased another 200 million yuan, and "Jiehe" Bain Capital finally took 92% equity of Mead Johnson China.

For this acquisition, Chunhua capital believes that it is the company's "another important layout in the field of consumption". Song Liang, a dairy expert, believes that the management and operation of Mead Johnson's China business will remain independent and will be implemented by the Mead Johnson China team.

However, song Liang also believes that Chunhua capital and JUNLEBAO should be fully communicated before the acquisition, and Mead Johnson China may further integrate with JUNLEBAO in the future, "because from the perspective of capital, after purchasing Mead Johnson China, it will either be sold to other enterprises after packaging, or exit through listing. At present, the second possibility is greater, that is to integrate with JUNLEBAO, and then exit. "

Cut sum

For the milk powder industry, the sale of Mead Johnson in China is another major event in addition to the decline of the birth population for three consecutive years. With the acquisition of Mead Johnson China by Chunhua capital, together with the change of ownership of Domex and Wyeth, Abbott is the only foreign brand that once dominated China's milk powder market, and now only Abbott is still "unchallenged". Although there have been rumors in the industry that Abbott will divest its milk powder business, there has been no news.

On the contrary, Li Jie took the lead. In February this year, the company announced a comprehensive strategic assessment of its infant nutrition business in Greater China. At that time, it was less than four years before the company completed its "largest acquisition in history" - the $17.9 billion acquisition of Mead Johnson.

It is reported that the company will sell the infant nutrition business in Greater China, including the production facilities in nimegen and Guangzhou in the Netherlands, as well as the permanent exclusive license without license fee for the use of Mead Johnson and brands such as Lanzhen, platinum Rui and anlbao in Greater China. After the completion of the transaction, the company will continue to maintain the brands of Mead Johnson Lanzhen, platinum Rui and anerbao in the world, and continue to operate these brands in other countries or regions outside the Greater China region.

For the financial year ended December 31, 2020, the net income of infant nutrition business in Greater China was 861 million pounds (equivalent to RMB 7.7778 billion yuan), the operating profit was 85 million pounds, and the total assets was 5.4 billion dollars.

According to previous media reports, the first round bidders for the Greater China infant nutrition business include Bain Capital, Carlyle investment group and KKR. In addition, investors such as Yili, new hope dairy and Sequoia China, investors of JUNLEBAO, are also interested in bidding. The company hopes to sell the business at a target price of $2 billion (about 12.862 billion yuan), according to people familiar with the matter.

Did not expect less than a month, Chun Hua capital, another investor of junle Bao, unexpectedly suddenly "killed out" and became the receiver. Song Liang thinks that the price of $2.2 billion is "a little high" and "on this basis, Chunhua capital must obtain at least 25% of the income, which is basically about 16 billion to 18 billion." In its view, the capital will ultimately pursue returns, so it is worth continuing to pay attention to how Chunhua withdraws next.

Chunhua's abacus

In fact, Chunhua has already thought about it.

In November 2019, led by the management of JUNLEBAO group, Chunhua capital, together with Ping An capital and junqian shares, acquired 51% of JUNLEBAO dairy shares held by Mengniu for 4 billion yuan. This also means that JUNLEBAO successfully "flies alone", further away from IPO.

In March last year, JUNLEBAO dairy was refinanced by Sequoia Capital China Fund. Sequoia Capital acquired 15.26% equity of JUNLEBAO with more than 1.2 billion yuan, and became the largest institutional shareholder of the company. In July of the same year, it was reported that JUNLEBAO Dairy Co., Ltd. planned to list in Hong Kong and the mainland of China, and planned to raise $700 million. But then JUNLEBAO dairy immediately denied it and said that "the company has no listing plan at present.".

Affected by the decline of birth rate, the growth rate of infant milk powder Market in China continued to decline. In the fierce competition, the share of foreign capital is declining, while the domestic milk powder is advancing step by step under the support of policy.

Zhu danpeng, an analyst of China's food industry, believes that foreign brands have lost to the service system in the sinking market in recent years, which has led to a continuous decline in customer stickiness. Meanwhile, the domestic milk powder enterprises such as Feihe and JUNLEBAO, with the help of the demographic dividend of China's newborn birth rate concentrated in the third and fourth tier cities, continued to increase the size of marketing, establish a service system and other measures to continuously promote the territory from the bottom to the top.

As for the current shortcomings of multinational brands, Rui Enda, CEO of Greater China region of Li Jieshi, also made a vague mention in an employee letter issued on the morning of June 6. He said that after joining Chunhua capital, Mead Johnson China can "make full use of the business opportunities in the market and explore the third and fourth tier cities with fewer e-commerce and multinational companies." Rui Enda also revealed that Chunhua capital highly recognized the strength of Mead Johnson's Greater China team.

Song Liang judged that Chunhua capital will be beneficial to Mead Johnson's China business. First, Chunhua capital will continue to invest in Mead Johnson for product R & D, brand building and market development; Secondly, Mead Johnson China and JUNLEBAO can play a synergistic effect to accelerate their entry into the third and fourth tier markets; Finally, the management team should improve the market efficiency of independent development, improve the category structure and expand flexible channels.

Song Liang believes that there may be three ways to integrate Mead Johnson China and JUNLEBAO in the future“ The first way is to exchange shares with Mead Johnson China before JUNLEBAO goes public. The second way may be that both parties and the capital are combined to package, that is, Mead Johnson China, JUNLEBAO and the capital package behind JUNLEBAO, and then unified listing. The third is that after JUNLEBAO is listed, it will fully acquire Mead Johnson. "

Song Liang further pointed out that judging from the current volume of JUNLEBAO, the total amount of capital after the listing can reach 20 to 30 billion, so it is possible to acquire Mead Johnson China. In addition, for Chunhua capital, such a private fund, the target must be sold or listed out (in order to make a profit), "if it is sold, it is not likely to be sold at present, so it usually adopts the second way, packaging and listing and then exiting".

Internal and external cooperation

It is worth mentioning that, after reaching the transaction agreement, the net assets of infant nutrition business were re divided by Liga for accounting needs, including the value of Greater China region of 3.4 billion pounds, North America and other countries or regions of 5.4 billion pounds. After the completion of the transaction, mainly affected by the goodwill and intangible assets reassessment of infant nutrition business in Greater China, the company is expected to generate a net loss of about 2.5 billion pounds.

At present, the transaction still has to complete the legal negotiation procedures with the local trade unions in the Netherlands. Li Jieshi said that the relevant negotiation procedures will be started soon and contacts will be made with other relevant trade unions. The transaction is expected to be completed in the second half of 2021.

According to frost Sullivan data, China's infant milk powder market will reach 176.4 billion yuan in 2020. In this nearly 180 billion yuan market, the domestic milk powder market has accounted for more than 60%. Liu Xiaopeng, marketing director of JUNLEBAO milk powder, believes that the market share of domestic milk powder exceeds that of foreign brands. On the one hand, it is because of the continuous improvement of manufacturing level, on the other hand, it is because of the continuous improvement of quality management and system. He predicted that domestic brands will continue to dominate the market in the future.

In fact, such as flying crane, Yili and other brands also began to accelerate the attack to the first and second tier market. Take the flying crane as an example, starting from the north to infiltrate online cities (key cities and provincial capitals). According to Nielsen data, as of the fourth quarter of 2020, the overall market share of flying crane in China has increased to 17.2%, and that of online cities is 14.4%, up 38.46% year-on-year. At the same time, foreign capital has also been sinking and the market is making efforts. Zhang Zhiqiang, general manager of the platinum group of Wyeth nutritionals, previously told our reporter that next, Wyeth's product strategy will focus more on some core products and core markets. Next, it will seize the opportunity of sinking the market and provide more differentiated product and channel strategies to meet the needs of the sinking market through a more localized approach.

"The biggest problem of foreign brands lies in their weak expansion in the third and fourth tier markets. Their advantage is that the first and second tier markets have a very good brand and market foundation. Therefore, it is a difficult point for China to make full use of this complementary advantage." Song Liang believes that if we look at it from the perspective of development, the so-called dividing line between domestic and imported products will become more and more blurred in the future, and the first, second and third and fourth tier markets will gradually become unified markets.

In this context, managers, whether domestic or foreign, should coordinate their brands, products and resources from the perspective of national market integration, so as to form a synergy effect between their own enterprises and the merged enterprises, so as to achieve 1 + 1 > 2, which is a common topic of the industry.

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