China Mengniu Dairy : Announcements and Notices - DISCLOSEABLE TRANSACTION ACQUISITION OF EQUITY INTEREST IN SHANGHAI MILKGROUND FOOD TECH COMPANY LIMITED

Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this announcement, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this announcement.

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

ACQUISITION OF EQUITY INTEREST IN

SHANGHAI MILKGROUND FOOD TECH COMPANY LIMITED

ACQUISITION OF EQUITY INTEREST IN SHANGHAI MILKGROUND

The Board is pleased to announce that on 13 December 2020, Inner Mongolia, a subsidiary of the Company, and Shanghai Milkground entered into the Share Subscription Agreement, pursuant to which Shanghai Milkground has conditionally agreed to issue and Inner Mongolia has conditionally agreed to subscribe no more than 100,976,102 Target Shares at a price of RMB29.71 (equivalent to approximately HK$35.21) per Target Share.

On the same date, Inner Mongolia and Ms. Chai, the existing controlling shareholder of Shanghai Milkground entered into the Cooperation Agreement, pursuant to which Ms. Chai has agreed to, and to procure her controlled entities to, during a certain period of time, abstain from exercising all or parts of their voting rights over such number of Target Shares.

As of the date of this announcement, Inner Mongolia is holding approximately 5% in Shanghai Milkground, which Inner Mongolia acquired in March 2020. Assuming 100,976,102 Target Shares will be issued pursuant to the Share Subscription Agreement, Inner Mongolia will be holding approximately 23.80% in Shanghai Milkground on a fully diluted basis. Upon Completion, Inner Mongolia will become the controlling shareholder (as defined under the relevant rules of CSRC) of Shanghai Milkground.

LISTING RULES IMPLICATIONS

As one or more of the applicable percentage ratios (as defined in the Listing Rules) in respect of the transaction(s) contemplated under the Share Subscription Agreement and the Cooperation Agreement, on an aggregated basis with the consideration for the Previous Acquisition, exceed 5% but are less than 25%, the Acquisition constitutes a discloseable transaction of the Company under Chapter 14 of the Listing Rules and is therefore subject to the reporting and announcement requirements under Chapter 14 of the Listing Rules.

-1-

THE ACQUISITION

The Board is pleased to announce that on 13 December 2020, Inner Mongolia, a subsidiary of the Company, and Shanghai Milkground entered into the Share Subscription Agreement, pursuant to which Shanghai Milkground has conditionally agreed to issue and Inner Mongolia has conditionally agreed to subscribe no more than 100,976,102 Target Shares at a price of RMB29.71 (equivalent to approximately HK$35.21) per Target Share.

On the same date, Inner Mongolia and Ms. Chai, the existing controlling shareholder of Shanghai Milkground entered into the Cooperation Agreement, pursuant to which Ms. Chai has agreed to, and to procure her controlled entities to, during a certain period of time, abstain from exercising all or parts of their voting rights over such number of Target Shares.

As of the date of this announcement, Inner Mongolia is holding approximately 5% in Shanghai Milkground, which Inner Mongolia acquired in March 2020 (the "Previous Acquisition"). Assuming 100,976,102 Target Shares will be issued pursuant to the Share Subscription Agreement, Inner Mongolia will be holding approximately 23.80% in Shanghai Milkground on a fully diluted basis. Upon Completion, Inner Mongolia will become the controlling shareholder (as defined under the relevant rules of CSRC) of Shanghai Milkground.

THE SHARE SUBSCRIPTION AGREEMENT

Key terms of the Share Subscription Agreement are summarized below.

Date	13 December 2020
Parties	(1) Inner Mongolia
	(2) Shanghai Milkground

To the best of the Directors' knowledge, information and belief having made all reasonable enquiry, Shanghai Milkground and its ultimate beneficial owner are third parties independent of the Group and its connected persons.

Assets to be acquired

The assets to be acquired by Inner Mongolia pursuant to the Share Subscription Agreement are such number of new Target Shares to be issued by Shanghai Milkground, being not more than 100,976,102 Target Shares, at a price of RMB29.71 (equivalent to approximately HK$35.21) per Target Share.

As of the date of this announcement, Inner Mongolia is holding approximately 5% in Shanghai Milkground, which Inner Mongolia acquired in March 2020. Assuming 100,976,102 Target Shares will be issued pursuant to the Share Subscription Agreement, Inner Mongolia will be holding approximately 23.80% in Shanghai Milkground on a fully diluted basis. Upon Completion, Inner Mongolia will become the controlling shareholder (as defined under the relevant rules of CSRC) of Shanghai Milkground.

Please refer to the section headed "Information on Shanghai Milkground" of this announcement for more information on Shanghai Milkground.

-2-

Consideration

Assuming 100,976,102 Target Shares will be issued pursuant to the Share Subscription Agreement, the total Share Consideration will be approximately RMB3 billion (equivalent to approximately HK$3.555 billion), which will be paid in cash to Shanghai Milkground at Completion.

As of the date of this announcement, the Group intends that the Consideration will be funded by internal resources of the Group and bank financing.

Basis for determination of the Share Consideration

The Consideration has been determined in accordance with relevant regulations including Administrative Measures for the Issuance of Securities by Listed Companies issued by the CSRC, after arm's length negotiations between Inner Mongolia and Shanghai Milkground with reference to, among others, the current operating conditions in the PRC cheese market, comparable listed company analysis, comparable market transactions, Shanghai Milkground's market value and the Company's assessment of the value of Shanghai Milkground to the Group, including the reasons for and benefits of the Acquisition as set out below.

Conditions

Completion of the Share Subscription is subject to fulfilment of the following key Conditions:-

1. Approval by or no objection from SAMR for the proposed transaction having been obtained;
2. Approval by the CSRC for the proposed transaction having been obtained.

Completion

Completion of the Acquisition is subject to the fulfilment of the Conditions on or before the date that is 12 months after the date of the Share Subscription Agreement, or any other date otherwise agreed in writing by Inner Mongolia and Shanghai Milkground.

THE COOPERATION AGREEMENT

Key terms of the Cooperation Agreement are summarized below.

Date	13 December 2020
Parties	(1) Inner Mongolia
	(2) Ms. Chai

To the best of the Directors' knowledge, information and belief having made all reasonable enquiry, Ms. Chai is a third party independent of the Group and its connected persons.

-3-

Abstaining from exercising of voting rights

Pursuant to the Cooperation Agreement, Ms. Chai has agreed to Inner Mongolia to, and to procure her relevant controlled entities to, during a certain period of time, abstain from exercising all or parts of their voting rights over such number of Target Shares ("Ms. Chai's voting undertaking").

In consideration of Ms. Chai's voting undertaking, Inner Mongolia has agreed to (A) grant Ms. Chai (or a person designated by Ms. Chai) the right to be paid the difference between (i) RMB39 (equivalent to approximately HK$46.22) (the "Benchmark Price") and (ii) the average market price of the previous 60 trading days at the time of Ms. Chai (or a person designated by Ms. Chai) issuing a notice to exercise such right (if higher than the Benchmark Price), in respect of certain number of Target Shares ("Relevant Shares") which Ms. Chai and her controlled entities beneficially own and abstain from voting on ("Share Price Compensation"); (B) grant a loan as requested by Ms. Chai in the amount representing the difference between (i) Benchmark Price and (ii) the average market price of the previous 60 trading days at the time of Ms. Chai requesting for such a loan (if higher than the Benchmark Price), in respect of the Relevant Shares ("Loan"), provided that any outstanding amount under the Loan shall be utilized to set off an equivalent amount of Share Price Compensation.

Parties to the Cooperation Agreement agree that the total amount of the Share Consideration, the Share Price Compensation and the Loan, on an aggregated basis with the consideration for the Previous Acquisition, shall not exceed such an amount which would otherwise cause the transaction contemplated under the Share Subscription Agreement and the Cooperation Agreement to constitute a major transaction or above of the Company pursuant to the Listing Rules.

The Cooperation Agreement is conditional upon completion of the Share Subscription Agreement having taken place.

REASONS FOR AND BENEFITS OF THE ACQUISITION

Shanghai Milkground's cheese business have seen rapid expansion in recent years. With its substantial cheese production capabilities and technique, it has become a leading enterprise in the cheese industry in the PRC. This investment is in line with the Company's development strategies. The Company is optimistic about the future prospects of the cheese market and recognizes Shanghai Milkground's long term development potential.

Having considered the above, the Board concluded that the terms of the Share Subscription Agreement and the Cooperation Agreement and the transactions contemplated thereunder are fair and reasonable and in the interests of the Company and its shareholders as a whole.

INFORMATION ON SHANGHAI MILKGROUND

Shanghai Milkground is a joint stock company incorporated in PRC and has its A-shares listed on the Shanghai Stock Exchange (Stock Code: 600882). It is principally engaged in manufacturing and distribution of dairy products, including production of cheese, liquid milk, butter, cream, condensed milk, cheese slides. It has 5 manufacturing facilities across PRC, and is a leading PRC cheese brand. As of the date of this announcement, Ms. Chai holds approximately 19.88% interest in Shanghai Milkground and Inner Mongolia holds approximately 5% interest in Shanghai Milkground.

-4-