---
title: "How Likely Is Mengniu's Acquisition of Zhongding?"
description: "Before the Spring Festival, Mengniu and Zhongding deepened their cooperation. This article examines the speculation that Mengniu might acquire Zhongding, analyzing the strategic cooperation agreement and the underlying economics from both sides' perspectives."
author: "张志伟"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
telephone: "+8615854817671"
published: "2019-02-25"
language: "en"
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# How Likely Is Mengniu's Acquisition of Zhongding?

> Before the Spring Festival, Mengniu and Zhongding deepened their cooperation. This article examines the speculation that Mengniu might acquire Zhongding, analyzing the strategic cooperation agreement and the underlying economics from both sides' perspectives.

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Before the Spring Festival, Mengniu and Zhongding deepened their cooperation. Today, we will examine the speculation from the information publisher and media at the time: "Mengniu may acquire Zhongding"—how likely is it?
First, let's review the specific aspects of the strategic cooperation signed between Mengniu and Zhongding before the Spring Festival: **"Promote cooperation and win-win development in areas such as fresh milk purchase and sales cooperation, dairy source business model promotion, forage resource integration, resource and technology platform construction, and deepening strategic cooperation in the Russian Far East."
The above strategic cooperation is reflected in five aspects, among which the most noteworthy are fresh milk purchase and sales cooperation, forage resource integration, and deepening strategic cooperation in the Russian Far East.
Next, we will interpret the economics behind the "Mengding Cooperation" from two levels.
**Why is Mengniu in a hurry to "confess" to Zhongding?**
As is well known, at the end of December 2018, Mengniu acquired Shengmu's downstream assets, thereby indirectly controlling Shengmu's dairy sources.
Unexpectedly, just half a month later, around January 15, 2019, news suddenly came that Yili planned to acquire Saikexing and Zhongdi, which put Mengniu on the defensive. They had to take some measures.
Why do we say this? Let's compare the dairy cow inventories of Mengniu and Yili: Modern Farming has about 220,000 head, Fuyuan about 60,000 head, and Mengniu's large-scale pasture inventory totals about 280,000 head; if Yili acquires Saikexing (about 130,000 head) and Zhongdi (about 70,000 head), plus Youran's about 130,000 head, Yili's large-scale pasture inventory would total about 330,000 head.
China's raw milk industry has been in a downturn for five years. Although there is no clear sign of bottoming out and rebounding yet, from the perspective of consumption upgrade and people's demand for health and nutrition due to increased income, the demand for milk in the Chinese market will only grow.
If we wait for an obvious recovery before laying out dairy sources, it will be too late.
In addition, the entire industry is currently brewing efforts to develop the low-temperature fresh milk market. Without dairy sources, it won't work. And taking advantage of the low raw milk market to acquire and lay out is clearly more rational.
In terms of large-scale pastures, China only has a few decent farming enterprises such as Modern Farming, Yuanshengtai, Saikexing, Huishan, Zhongding, Zhongdi, and Fuyuan. After these are all taken, only "Zhongding" remains.
So, on January 31, Mengniu couldn't wait to "confess" to Zhongding.
**Zhongding is playing a big chess game for Mengniu**
It can be said that since Zhongding was founded in 2013, Shiwujun has watched this enterprise grow step by step. Most of Zhongding's team came from old Mengniu. Sun Guoqiang once served as middle and senior management in Mengniu's dairy source division. After leaving Mengniu, they started a new business in their most familiar field.
These six years have been really tough for them. Raising cattle is not an easy task. Moreover, Sun Guoqiang and the Zhongding team also had to meet, discuss, execute, and implement details one by one in multiple aspects, including business model, operation and management, investment and financing, national policy direction, and future long-term development planning.
Since its founding, investors including CDH have given Zhongding great support, but what the Zhongding team and investors did not anticipate was that the downturn in the raw milk industry would be so long that it disrupted their original plans.
In Shiwujun's impression, this is the first time Mengniu has actively approached Zhongding. Although Zhongding has always been a major milk supplier to Mengniu and Yili, this strategic cooperation between Zhongding and Mengniu is equivalent to defecting to Mengniu. It not only reassures Mengniu but also makes Yili feel cold.
From the aspects of the Mengniu-Zhongding strategic cooperation mentioned above, "fresh milk purchase and sales cooperation" ranks first, indicating that Mengniu, by publicly holding this strategic cooperation signing with Zhongding, is signaling to the entire industry: Zhongding is mine, don't think about making a move on it.
At the same time, Zhongding is also showing a signal to the entire industry and the capital market in a weak market: We have a strong relationship with Mengniu, and the future sales of raw milk have a stable guarantee.
But if we infer from this that Zhongding will be acquired by Mengniu, it would be too arbitrary.
Why do we say this? First, most of Zhongding's dairy cows are entrusted to them by dairy farmers for management. The lease periods range from five to ten years, varying in length. When the contract expires, the number of cows originally leased and their condition must be returned to the dairy farmers. The remaining newly expanded and increased cows are Zhongding's own. Based on this, Zhongding's current asset structure is relatively complex, making acquisition more difficult.
Second, Zhongding currently has its own major project, which is the "Russian Far East Project" mentioned in this Mengniu-Zhongding strategic cooperation. Specifically, Zhongding and the Russian side will jointly build the "China-Russia Agricultural and Animal Husbandry Industrial Demonstration Park," building an agricultural and animal husbandry industrial park in Russia for grass planting and cattle raising, building a dairy processing park in Mudanjiang, and building a feed processing park in Suifenhe. The plan includes a 10,000-hectare core area, a 50,000-hectare demonstration area, and a 100,000-hectare radiation area. The Far East Animal Husbandry Special Zone will raise 50,000 dairy cows, with an annual processing capacity of 1 million tons of feed and fresh milk both domestically and abroad.
Zhongding's goal is to use Russia's pasture resources and China's dairy cow resources to build a production base for organic milk and pasteurized milk in the Far East and Heilongjiang.
According to Russian media reports: Currently, several Chinese dairy giants are very interested in the Russian Far East project.
This time, Mengniu publicly stated that it would deepen cooperation with Zhongding on the Russian Far East project, which also reveals that Mengniu is the most interested in the Russian Far East project.
Internationalization and the Belt and Road Initiative have been important strategies for Mengniu in the past two years. Building a factory in Indonesia has already allowed Mengniu to go fast and far on the Belt and Road. If it can join hands with Zhongding to achieve results in the Russian Far East project, it will not only make Mengniu outstanding in national brand, great power image, and corporate responsibility, but also put it at the forefront of the industry in international resource layout and imported organic pasteurized milk.
Mengniu's acquisition of Shengmu's downstream assets is a precedent and an important signal. In the future, projects acquired by Mengniu must have complementary effects and important contributions to Mengniu's business layout, revenue performance, and long-term development. Otherwise, it will be difficult for them to enter Mengniu's field of vision.
Source: Shiwu (ID: food-gnosis)
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