July 29, 2010

China's Yuhe buys five breeder farms in Liaoning

Day-old broilers supplier Yuhe International has announced that the company's wholly owned subsidiary, Weifang Yuhe Poultry Co Ltd, has entered into an asset purchase agreement with Liaoning Haicheng Songsen Stock Farming and Feed Company Limited to purchase five breeder farms in Haicheng city, Liaoning province for RMB21.3 million (US$3.1 million).

Concurrently, Weifang Yuhe entered into a service agreement with Zhaolin Jiang, the controlling shareholder of Haicheng Songsen, who provides Weifang Yuhe with certain services related to completing the asset purchase transaction in exchange for 300,000 restricted shares of Yuhe common stock calculated at a price of US$10 per share with total consideration equal to approximately RMB20 million (US$2.95 million). The restricted shares are subject to a six-month lock-up period.

Upon completion of this deal, Yuhe will be the largest farmer of parent breeders and the largest producer of day-old broilers in terms of production capacity in China, said Zhentao Gao, Chairman and CEO. "For the first time, we will also have a production base outside of Shandong province, an important milestone in our path toward becoming the leading company in the national broiler market in China."

The five breeder farms have a total production capacity of 430,000 sets of parent breeders, covering an area of about 52 acres with building coverage of approximately 680,000 sq. ft. The assets to be purchased include the buildings and equipment for the acquired breeder farms, and the land leasing rights, which range from 14 years to 24 years. Upon the closing of the transaction, Yuhe will have a production capacity of 2.23 million sets of parent breeders.

The company plans to spend RMB1.6 million (US$0.2 million) to upgrade the facilities and RMB200,000 (US$29,400) for employee training. The average cost for the company to acquire these breeder farms (including the expenses for facility upgrades and employee training but excluding land rent and new-issued-share price premium) is reportedly 20%-25% lower than the cost of building such farms from scratch.