Winnie Shi finance club case

1. Committee
Winnie Shi,
Eveline Dong,
Natalie Jin.

2. Appendix Market Overview TMT Milk Pork Q&A
Appendix:
1: Market Overview – Winnie Shi
2: TMT M&A –Winnie Shi
–Baidu’s acquisition of 91 wireless
3: Milk Industry M&A - Natalie Jin
-Mengniu’s acquisition of Yashili
4: Pork Industry M&A –Eveline Dong
-Shuanghui’s acquisition of Smithfield

3. Presented by Winnie Shi
Market OverviewTMT Milk Pork Q&A

4. China deal numbers recovered from multi-
year lows in the first half of 2013,
increasing by more than 40% in the second
half; nearly all categories of M&A showed
strong growth.
On an annualised basis – despite the quiet
first half – overall deal volumes grew by 8%
and values by 28% in 2013 compared to
2012; deal values reached a record high
with 43 deals greater than US$1 billion in
2013, compared to 30 in 2012.
Analysis by Volume &
Deals
Cross-boarder Analysis
Outbound deals in Q1-Q3 2013 saw the
highest record in terms of both deal
value and volume for the same period
since 2007. The US was the largest
market for Chinese bidders by value (US$
11.4bn, 16 deals), and Europe topped in
terms of deal count value (US$ 5bn, 32
deals).
Inbound M&A increased 99.7% from Q2
2013 (US$ 2.7bn, 35 deals) to US$ 5.4bn
(48 deals) this quarter .
Deal-Size Analysis
Deals valued between US$501m-
US$2bn witnessed the highest record
by both deal value and deal count
(US$50.6bn, 55 deals) in the past six
year, contributed 42.3% of the total
deal value in Q1-Q3 2013 .

5. Energy, Mining & Utilities was the most active
sector so far this year, with 70 deals worth
US$ 29.7bn recorded, increased 97.6% from
same period 2012. This sector saw three
deals in top list with a combined value of
US$19.7bn, account for almost two-thirds of
total value of the sector.
The Consumer sector saw the largest
increase by value (617.3%) compared to same
period last year (US$2.8bn, 50 deals), with 81
deals worth US$20.4bn recorded, which
made it into the top 3 sectors.

6. King & Wood Mallesons led the Legal Advisor League
Tables by both value and deal count, advising on 33
deals total of US$ 28.6bn, who ranked 14th by value for
the same period last year.
China +HK Financial Advisor
League Table
China +HK Legal Advisor League
Table
Barclays topped the financial advisor rankings by value
(US$ 19bn) from 38th for the same period last year, while
UBS Investment Bank led the financial advisor league table
in terms of deal volume by advising 20 deals

7. Inbound Analysis by region
Foreign inbound M&A was flat; Japanese
investment has declined sharply over the
last two years as has investment from the
US. European investors did the biggest
value inbound deals, as they have for
three out of the last six years
.
Outbound Analysis by region
Destination markets were remarkably
similar to 2012 with much of money
targeting established technologies,
know-how, IP and brands in mature
markets such as the US and Europe.

8. -The most expensive acquisition in Chinese internet history
Appendix Market Overview TMT Milk Pork Q&A

9. By: Winnie Shi
Appendix Market Overview TMT Milk Pork Q&A

10. Why the Acquisition happened?
Huge app
distributor
•91 has 2 mainstream app stores: 91 Assistant and
Android
•91 wireless has two platforms: IOS and Android
•From 2011 to 2012, it had 10 billion app downloads
User base
•In 2012, 91 Wireless’ user base is 130 million
• 91 Wireless has its own database, programming, and
developing teams
Mobile
Internet
Access
•After acquisition, Baidu will get access to “Mobile
Search, Map LBS, & App distributor,” the 3 major
accesses to mobile internet.
By: Winnie Shi
Appendix Market Overview TMT Milk Pork Q&A

11. Market Change Before & After Acquisition
Information was released to public on July 15th, 2013
Time=two weeks 7/15 (Before) 7/29 (After)
Stock Price 100 USD 127 USD
Enterprise Value 35.2 billion USD 45.2 billion USD
Stock price 27% UP. Enterprise Value 10 billion UP.
why did Baidu’s stock
price increase?
1: With 91 wireless, Baidu
gets access to both PC and
mobile internet markets.
More competitive.
2: Baidu has good financial
Statement in 2013 Q2.
In Q2, Baidu gained 58,000
new user base. For the 1st
time, Baidu’s Mobile
market share reached 10%
of total market share.
By: Winnie Shi
Appendix Market Overview TMT Milk Pork Q&A

12. Market Change Before & After Acquisition
After
Stock Price 22% Down (19.4 HKD)
Enterprise Value 9.793 billion HKD
1: Its strongest asset,
91 wireless, was acquired.
Netdragon now only has
limited services remained.
2: Information was released
early and stock price surged
before acquisition.
Now investors sell their stocks
to gain benefit. Stock price falls.
By: Wenting Shi
Why did Netdragon’s
stock price decrease ?
Appendix Market Overview TMT Milk Pork Q&A

13. Value of 91 Wireless Network.
2): Baidu’s Rivalry: Qihoo 360 tried to
prevent this acquisition. 360’s owner
flew to Fujian to negotiate with 91
Wireless with higher bid price.
3): Baidu used Money to “buy time.”
Mobile Internet market is vital. Baidu has
no time to build a new large app
distributor to compete with Qihoo 360.
4): Alibaba, Tencent, and 360 were all
actively fighting for 91 wireless. At the
night before deal day, Alibaba was still
negotiating with a higher bid price.
Market Share
1): 91 Wireless is in fact not the
largest App distributor. 360 has the
largest market share. The acquisition
price may have been too high.
Appendix Market Overview TMT Milk Pork Q&A

14. Mengniu and Yashili M&A
By: Natalie Siyan Jin
Appendix Market Overview TMT Milk Pork Q&A

15. Market Overview
High price is expected to continue in the short
run
Consolidation encouraged by the
government + New rules on supervising
how the product is manufactured
Market Trends
I. Market expansion into IMF sector
Ex: Mengniu
II. Companies in need of IMF production
certificate
Ex: Biostime
III. Consolidation with upper stream for
better milk source
Ex: Yili、Feihe
IV. Consolidation with down stream for
better distribution channel
Ex: Shengyuan、Feihe
Market EnvironmentCurrent Market Situation
Consumers are insensitive to high
prices
Background
Complex distribution layers cause
high retail markup
Factor 1
Manufacturer pays little efforts in
cost reduction
Factor 2
Appendix Market Overview TMT Milk Pork Q&A

16. Triggered by
last baby boom
Ease of one-child policy in 2013
Baby boom will occur in the near future
The Fourth baby boom in near
future
Market Outlook
The fourth baby boom is triggered since 2010
Last baby
boom is from
1982-1992
Third baby
boom
generation
reaches
childbearing
age
Forth baby
boom
starts at 2010
**The baby boom implies
that there will be an
increase number of new
born babies which means
that consumption and
demand for IMF will
increase

17. Company Profile
2319.HK 1230.HK
Establishments: 1999 1983
Major Shareholders: COFCO (中粮集团)
Zhang International Investment (张氏国际)
Revenue 36B(IMF: 0.3B) 3.6B(IMF: 3B)
Mengniu’s Business Yashili Business (2012)
Acquisition Motivation:
1. Mengniu’s revenue in 2012 was 36B (-3.5% YOY),
less than Yili’s 42B (+12.12% YOY)
2. Mengniu’s gross margin was 25.1% (lower than Yili
and Bright Dairy)
3. Mengniu is seeking opportunity to be more
competitive in the IMF sector by acquiring Yashili
Transaction Snapshot
89.60%
8.80%
1.60% Liquid Milk
Ice Cream
Other Dairy
68%
18%
13%
1%
Yashily IMF
Scient IMF
Nutrition
Others
Announcement
date：
Jun 18, 2013
Offer price &
funding:
(a) HK$3.50 in cash; or (b) HK$2.82
in cash and 0.68 Share in the
Mengniu’s subsidiary
Financing: Debt provided by HSBC and Standard
Chartered
Status: Officially closed on Aug 16
Advisors: UBS, HSBC, Standard Chartered;
Somerley Ltd
Transaction
highlights:
Total acquisition fee exceeds 12B
HKD; One of the biggest M&A cases
in domestic IMF sector
Financials
Premium 9.4% (Compared to 3.2HKD on Jun 13)
Multiples 17.7x F13E P/E (Industry average: 25x)
Impact
on EPS:
Accretive;Yashili would contribute to
Mengniu’s business by 400% growth in IMF
sector (which would account for 10% of total
revenue) and more than 12% of annual
growth in EPS

18. Market Response
 Jun 13, Both stocks were suspended; Last trading price: Mengniu 26.85 HKD, Yashili 3.33 HKD
 Jun 19,Trading resumed; Yshili opened at 3.45 HKD and closed at 3.43 HKD; Mengniu opened at 29.1
HKD and closed at 28.7 HKD
 Aug 17, Yashili was suspended again due to HKex requirement of 23% shares held by the public
 Aug-Nov, Mengniu sold 11.17% of Yashili’s shares to Temasek Holdings and Hopu
 Nov 11, Yashili opened at 4.24 HKD with 17% growth. Mengniu’s price increased by 2.7% to 32.1 HKD
Mengniu: Yashili
Investment Strategy
Long-term positive on domestic IMF:
Government is supportive of midsize companies
merging with large IMF companies
Short-term:
Consumer perception: premium brands
Consumers trust brand name companies products
Research Report Quotes:
• Mengniu can rapidly gain market shares in infant formula
market, from less 1% to over 7% and ride the strong
momentum of this market
• The acquisition will enrich Mengniu's product portfolio
• Channel coverage expansion. Both parties can use their
sales channels to cross-sell each other‘s products. Yashili
can leverage Mengniu’s channel network to further
penetrate into lower-tier cities and rural market
• Reduce competition from local brand who are active at
south of China, which will lead to more savings on
advertising and promotion

19. 3
Mengniu has a market share of 26%, major
competitor is Yili
In order to gain more market share and compete
in the market, baby milk powder is a great
chance.
Appendix Market Overview TMT Milk Pork Q&A

20. Yashili market share 4.27%
Appendix Market Overview TMT Milk Pork Q&A

21. Mengniu rose 6.9 percent to close at HK$28.70, the biggest gain since
May 20. Yashili International Holdings Ltd. (1230), the acquisition
target, gained 3 percent while the city’s benchmark Hang Seng
Index fell 1.1 percent. The two companies resumed trading today after
the shares were halted since June 13.
2013 Mengniu reported a 43,356B revenue. Since
the M&A, Mengniu’s 2013 has grown up 20.4% in
revenue and 30.7% in gross profit.
In August 2013, Yashili was consolidated into Mengniu’s
financial statements, contributing a revenue of
RMB1,499.1 million and a profit of RMB95.3 million to the
Group.
Yashili’s gross profit for the year amounted to
RMB2,080.1 million (2012: RMB1,961.7 million),
recording a year-on-year increase of 6.0%.
2013 Yili reported a 36,571B revenue.
Appendix Market Overview TMT Milk Pork Q&A

22. • May 30, 2013
• Bidder: Shuanghui International
Holdings Ltd.
o Financial Advisor: Morgan
Stanley
• Target: Smithfield Foods Inc.
o Financial Advisor: Barclays
• Deal-closed value: $4.7 billion
• The deal is the largest ever Chinese
takeover of a U.S. company in 2013
*Notes: 1. Shuanghui International Holdings owns Henan Shuanghui Investment &
Development Co (000895.SZ), the largest pork producer in China.
2. US-based Smithfield (SFD.N), is the world’s largest producer of pork, raising
16 million hogs a year. It was founded in 1936 as a meatpacking plant in Smithfield,
Va and earned $13.1 billion in revenue in 2012.
Appendix Market Overview TMT Milk Pork Q&A

23. Why the merge took place:
● increase demand of China on pork consumption
● safety concerns and low efficiency related to China’s own pork industry
Appendix Market Overview TMT Milk Pork Q&A

24. The significance of the M&A：
● The success of the deal might start to change the
perspective that the U.S. is not open for business
to the Chinese (WSJ).
● The deal will increase exports of American
products to China to face its growing demand and
compensate for the low efficiency and quality of
private pork suppliers in China.
● China can grow more mature in the pork genetics
technology by learning from U.S.
Result:
● Shuanghui International applies for Hong Kong IPO
● At a fundraising size of $5 billion, Shuanghui's IPO would be Asia's largest offering in two years.
Appendix Market Overview TMT Milk Pork Q&A