In a stock exchange filing, Feihe said that it entered into an agreement with Haerbin City Ruixinda Investment Co. Ltd. (HCRI) to sell it all of its equity interests in the two dairy farms - Heilongjiang Feihe Kedong Feedlots Co. Ltd and Heilongjiang Feihe Gannan Feedlots Co. Ltd.
According to the filing, Feihe has agreed to sell for a price of US$131.8 m, comprised of US$17.8 m in cash and six equal quarterly deliveries of raw milk in an aggregate value of approximately US$114 m.
Under the terms of the agreement, until HCRI has met its milk delivery obligations to Feihe, it will be required to exclusively supply raw milk to the latter and thereafter must prioritize any of its requirements for extra raw milk.
Feihe will also specify the feeding forage and feeding method and the quality of raw milk that the HCRI will provide and the exclusive supply period for Feihe will unlimited in nature.
“A professional company [HCRI] will operate the two dairy farms and we will be able to get the same premium quality dairy farm raw milk at an unlimited exclusive supply period,” Leng You Bin, CEO and chairman at Feihe said.
“This transaction will allow us to improve our liquidity and reduce our debt level, as well as eliminate our dairy farm operating expenses, while still ensuring our supply of high quality milk,” he said.
Bin also said that he hoped the transaction would allow Feihe to to focus on infant formula manufacturing and marketing in order for it to achieve our long-term leadership position within China's infant formula industry.
Feihe is generally one of China’s top producer and distributors of premium infant formula, milk powder, and soybean, rice and walnut products. Founded in 1962, Feihe has seven production facilities with a milk powder production capacity of approximately 1,950 tons per day.