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Japfa proposes to sell minority stake in dairy unit to Meiji for US$254m

JAPFA on Wednesday said it is planning to sell a 25 per cent stake in its subsidiary to Japanese conglomerate Meiji for US$254.4 million in cash. In addition, the subsidiary will get to supply raw milk to Meiji on a five-year rolling basis, renewable annually.

The subsidiary, AustAsia Investment, operates Japfa’s dairy-farming business in China. Japfa said the move is in line with its plans to grow AustAsia into the largest independent raw milk producer in China. 

As at the end of last year, AustAsia owned about 80,000 head of cattle, five modern dairy farms in Dongying and Shandong, as well as two farms in Chifeng in Inner Mongolia. 

Japfa added that the contract to supply milk to Meiji will provide AustAsia with a stable revenue stream, as it provides for the supply of a certain quantity of milk to Meiji at market price. 

Japfa stands to gain US$37 million from the proposed transaction, which it intends to use to repay a US$253-million term-loan facility. 

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Tan Yong Nang, Japfa's CEO, said that the company has for "many years" been supplying raw milk to Meiji, which had approached Japfa to support Meiji's growth plans in China.

"Their interest in holding a significant stake in our dairy business is a testament to the quality of our raw milk, the reliability of supply and our advanced farm-management techniques," Mr Tan added. 

The deal is subject to the approval of Japfa's shareholders at an extraordinary general meeting, which is likely to be after the company's annual general meeting by June 25.

Post-transaction, Japfa will be left with a 75 per cent stake in AustAsia, and will continue to manage AustAsia’s farming operations in China.

In its announcement, Japfa also said that its day-to-day operations have not yet been "materially impacted" by the Covid-19 outbreak as the group provides an essential service by supplying staple protein foods. 

However, it said that the outbreak is an unprecedented event and its impact "cannot be reliably estimated with any certainty". It will therefore continue to monitor the situation.

Clarification note: An earlier version of this article, including the headline, might have been interpreted as the deal being confirmed or completed. It is in fact a proposed transaction that is still subject to shareholder approval. The article has been amended to make this clearer.

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