China Mengniu Dairy : Announcements and Notices - Discloseable Transaction Proposed Acquisition of the Entire Share Capital of Bellamy''s Australia Limited by Way of A Scheme of Arrangement

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CHINA MENGNIU DAIRY COMPANY LIMITED

中國蒙牛乳業有限公司*

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 2319)

DISCLOSEABLE TRANSACTION

PROPOSED ACQUISITION OF THE ENTIRE SHARE CAPITAL OF BELLAMY'S

AUSTRALIA LIMITED BY WAY OF A SCHEME OF ARRANGEMENT

The Board is pleased to announce that on 15 September 2019, the Company entered into the Scheme Implementation Deed with the Target, a globally recognised Australian organic infant formula and baby food provider whose shares are listed on the Australian Securities Exchange (ASX:BAL). Pursuant to the Scheme Implementation Deed, the Company proposes to acquire all the Scheme Shares for a Scheme Consideration of AUD12.65 (equivalent to approximately HK$68.15) per Scheme Share. The Target Board intends to recommend the Proposed Acquisition to the Target Shareholders (other than the Excluded Shareholders) and implement the Scheme.

PRINCIPAL TERMS OF THE SCHEME IMPLEMENTATION DEED

The principal terms of the Scheme Implementation Deed are summarised as follows:

Date

15 September 2019

Parties

1. The Company
2. The Target

Save and except for the 3,248,482 Target Shares (representing approximately 2.9% of the issued share capital of the Target) held by the Company as at the date of this announcement, to the best of the Directors' knowledge, information and belief having made all reasonable enquiries, the Target and its other ultimate beneficial owner(s) are independent of and not connected with the Company and its connected persons.

Implementation of the Scheme

Pursuant to the Scheme Implementation Deed, the Target Board intends to recommend the Proposed Acquisition to the Target Shareholders (other than the Excluded Shareholders) and implement the Scheme.

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Subject to the Scheme becoming effective and upon satisfaction or waiver of the conditions of the Scheme:

1. all of the Scheme Shares will be transferred to the Bidder; and
2. the Scheme Shareholders will be entitled to receive the Scheme Consideration.

Scheme Consideration

The Scheme Consideration is AUD12.65 per Scheme Share. The Scheme Consideration was determined with reference to (i) the operating performance of the Target; (ii) the Target's historical trading price and the premia to trading price in recent comparable public takeover transactions in the ASX; (iii) the multiples of precedent transactions in the IMF space and the trading multiples of comparable public companies; and (iv) the Company's assessment of the value of the Target to the Group, including the prospects of the Target's growth both domestically in Australia and internationally in China and Southeast Asia.

As at the date of this announcement, there were 110,119,815 Target Shares in issue (excluding the Excluded Shares) and 5,231,993 Target Options granted and outstanding. Pursuant to the Scheme Implementation Deed, all outstanding Target Options will be vested and exercised, or vested and settled, in accordance with the terms of the Target Options or cancelled in accordance with the Scheme Implementation Deed by the Scheme Record Date.

The total consideration payable by the Company for the Scheme Shares is up to AUD1.46 billion (equivalent to approximately HK$7.86 billion). The Company expects to finance the Proposed Acquisition from a combination of internal resources and bank financing. Furthermore, under the Scheme Implementation Deed, Target is permitted to pay a special dividend of AUD0.60 per Scheme Share, conditional on the Scheme becoming effective.

REASONS FOR AND BENEFITS OF THE PROPOSED ACQUISITION

• Organic IMF and baby food market represents a highly attractive growth and margin expansion opportunity for the Group.
  o IMF is one of the largest and fastest growing segments amongst all dairy segments in China driven by increasing disposable income and growing child spend. Future growth is underpinned by continuous premiumisation and increasing penetration into lower tier cities, which have larger households and higher birth rates.
  o Organic IMF enjoys significantly faster growth and higher margins compared to the overall IMF market. Stronger demand for organic products is driven by consumer perception of higher quality and safety standards of organic ingredients. Organic share of the Chinese IMF market has increased noticeably in recent years.
• The Proposed Acquisition is in line with the Group's strategy and will enable us to capture the huge potential in organic IMF and baby food categories in China and Southeast Asia.
  o One of the Group's key growth strategy is to achieve break-through growth in the premium IMF segment.
  o In addition, the Target's operations in Australia, New Zealand and a number of Southeast Asia countries fit the Group's strategy to expand into overseas markets with near-term focus on Southeast Asia and Australia.

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• The Target is a global leading organic IMF company with strong brand recognition and attractive profit margin.
  o Based in Australia, the Target is principally engaged in the sale of organic IMF and food products for babies and toddlers. It is the number one organic IMF brand in Australia and a leading organic IMF brand globally. It enjoys strong brand awareness in China and Southeast Asia markets.
  o The Target has a comprehensive range of premium and super premium organic baby milk formula and baby food products, which enjoys higher margins than the Group's existing business segments.
• The Group believes it is uniquely positioned to unlock the Target's brand potential especially in the overseas markets including China and Southeast Asia.
  o The Target's positioning, product and channel mix are highly complementary to the Group's existing IMF operations, and hence will enable the Group to expand its product range and customer base in both China and overseas markets.

1. While the Group will lend its full support to the Target in continuing to grow in existing markets, it will also assist the Target in fully penetrating the Chinese and other Southeast Asian markets by leveraging its experience, resources and existing platform.

Having considered the above, the Directors (other than those abstaining) are of the view that the terms of the Proposed Acquisition and the transactions contemplated thereunder are fair and reasonable, and are in the interests of the Company and its shareholders as a whole.

INFORMATION ON THE TARGET

The Target is a limited liability company established in Australia whose shares are listed on the ASX, and is principally engaged in the sale of organic IMF and food products for babies and toddlers. Founded in Tasmania, the Target is a globally recognised Australian organic brand and has operations in Australia, New Zealand, the PRC and Southeast Asia. The Target offers Australian- made and certified organic products made with non-genetically modified ingredients, with essential vitamins and minerals that are tailored to the needs of babies and toddlers.

According to the published audited consolidated accounts of the Target as at 30 June 2019, the net assets of the Target was approximately AUD232.3 million. The audited net profits (before and after taxation) of the Target for the year ended 30 June 2018 were AUD61.2 million and AUD42.8 million, respectively, and the audited net profits (before and after taxation) of the Target for the year ended 30 June 2019 were AUD31.4 million and AUD21.7 million respectively.

Subject to the Proposed Acquisition becoming unconditional, upon closing, the Target will become a indirectly wholly-owned subsidiary of the Company and its results, assets and liabilities will be consolidated into the accounts of the Group.

RECOMMENDATION BY THE TARGET BOARD

Pursuant to the Scheme Implementation Deed, in the absence of a Superior Proposal and subject to the Independent Expert opining at all times prior to the Second Court Date that the Scheme is in the best interests of the Target Shareholders, the Target must ensure that:

1. the Target Board unanimously recommends that the Target Shareholders (other than the Excluded Shareholders) vote in favour of the Scheme at the Scheme Meeting, and a Target

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Director does not change, withdraw or modify, or make a recommendation that is inconsistent with, such recommendation; and

1. the Scheme Booklet will also include a statement to the effect that each Target Director will vote (or procure the voting of) all Target Shares held or controlled by him or her in favour of the Scheme at the Scheme Meeting, and a Target Director does not change, withdraw or modify, or make a statement that is inconsistent with, such statement.

CONDITIONS PRECEDENT TO THE PROPOSED ACQUISITION

The Proposed Acquisition is subject to, among others, the following Conditions being satisfied or waived:

1. before 8:00 a.m. (Australia time) on the Second Court Date, authorisations, clearance, consents, approvals or advice of no objections as may be required from any regulatory authority under applicable laws including the Treasurer of the Commonwealth of Australia (or his delegate) are granted, given, made or obtained, either unconditionally or subject to customary conditions or conditions which the Company reasonably considers to be acceptable, and not revoked or withdrawn (as the case may be) or the statutory period in which the Treasurer of the Commonwealth of Australia is empowered to make an order under the Foreign Acquisitions and Takeovers Act 1975 (Cth) has lapsed without such an order being made;
2. the Target Shareholders (other than the Excluded Shareholders) approve the Scheme by the requisite majorities under the Corporations Act at the Scheme Meeting;
3. the Court approves the Scheme in accordance with the Corporations Act;
4. no material adverse event as specified in the Scheme Implementation Deed occurs between the date of the Scheme Implementation Deed and 8:00 a.m. (Australia time) on the Second Court Date;
5. none of the prescribed occurrences as specified in the Scheme Implementation Deed occurs between the date of the Scheme Implementation Deed and 8:00 a.m. (Australia time) on the Second Court Date; and
6. other customary conditions as set out in the Scheme Implementation Deed.

INFORMATION ON THE BIDDER AND THE GROUP

The Bidder is an indirectly wholly-owned subsidiary of the Company to be established in Australia with limited liability after the date of the Scheme Implementation Deed, which will principally engage in investment holding activities.

The Group is principally engaged in the manufacture and distribution of quality dairy products including liquid milk, ice-cream, milk formula and other dairy products and is based in the PRC.

LISTING RULES IMPLICATIONS

As one or more of the applicable percentage ratios in respect of the Proposed Acquisition exceed 5% but are all less than 25%, the Proposed Acquisition constitutes a discloseable transaction of the Company and is subject to the reporting and announcement requirements under Chapter 14 of the Listing Rules.

OTHER INFORMATION

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On 16 September 2019, the Target released an announcement on the ASX in relation to the Proposed Acquisition. Please refer to the website of the ASX (https://www.asx.com.au/) for further details and the full text of the Scheme Implementation Deed including the expected timetable for, inter alia, the despatch of the Scheme Booklet, the Scheme Meeting, the Court hearings and the Scheme Record Date.

The Scheme is subject to certain conditions precedent which may or may not be satisfied and therefore, completion of the Proposed Acquisition may or may not take place. Shareholders and potential investors of the Company are advised to exercise caution when dealing in the securities of the Company.

DEFINITIONS

In this announcement, unless the context otherwise requires, the following terms have the following meanings:

"ASX"	ASX Limited (trading as the Australian Securities Exchange)
"AUD"	Australian dollars, the lawful currency of Australia
"Bidder"	an indirectly wholly-owned subsidiary of the Company to be established
	in Australia with limited liability after the date of the Scheme
	Implementation Deed
"Board"	the board of Directors
"Company"	China Mengniu Dairy Company Limited, a company incorporated in the
	Cayman Islands with limited liability, the shares of which are listed on
	the Main Board of The Stock Exchange of Hong Kong Limited (stock
	code: 2319)
"Competing Proposal"	a transaction or arrangement, or any proposal, offer or expression of
	interest in relation to a transaction or arrangement, pursuant to which a
	third party will, if the transaction or arrangement is entered into or
	completed:
	(a) acquire (whether directly or indirectly) or become the holder of a
		legal, beneficial and/or economic interest in, all or a substantial
		part of the business or assets of the Target Group taken as a
		whole;
	(b) acquire a relevant interest in, or otherwise acquire or have a right
		to acquire a legal, beneficial and/or economic interest in, 20% or
		more of the Target Shares; or
	(c)	acquire control of the Target within the meaning of the
		Corporations Act or otherwise acquire or merge with the Target,
	whether by way of takeover bid, scheme of arrangement, shareholder
	approved transaction, capital reduction or buy-back, sale or purchase of
	shares or assets, joint venture, dual-listed company structure (or other
	synthetic merger), or other transaction or arrangement
"Condition(s)"	the condition(s) of the Proposed Acquisition stated under the section
	headed "Conditions" in this announcement, with details set out in the
	Scheme Implementation Deed
"Corporations Act"	the Corporations Act 2001 (Cth)

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