Yamada Green Resources Ltd - MANAGEMENT REPLY: What are the consequences of associate’s contaminated consignment to Japan?

The company agrees to acquire a 19% stake in Zhangzhou Meisei Foods from a cousin of its Executive Director cum CEO.

26/6/2014 – Yamada Green Resources Ltd, in an unexpected announcement on a Sunday evening, said it has agreed to acquire a 19% stake in Zhangzhou Meisei Foods Co Ltd for RMB 36.4 mln.

Its wholly-owned subsidiary Fuzhou Wangcheng Foods Development Co Ltd will buy the stake from Du Deming, a cousin of Yamada Green Executive Chairman cum CEO Chen Qiuhai.

After the transaction, Mr Du will still own a 41% stake in Zhangzhou Meisei Foods, while Ms Chen Ruofeng will continue to own the remaining 40% stake.

Incorporated in 2006, Zhangzhou Meisei Foods supplies processed bamboo shoots, pickled vegetables, and other products.

Investor Central. Asian insights for global investors. We ask the tough questions of Asian companies which global investors need answers to.

Question

1. What are the consequences of Zhangzhou Meisei Foods’ contaminated consignment to Japan?

The acquisition of the 19% stake on June 19 – three days before the disclosure – follows a contamination scare three weeks earlier.

According to the National Food Quality Supervision and Inspection Center of China’s report on food exports to Japan in May, Zhangzhou Meisei Foods’ consignment of Boiled Nameko to Yokohama on May 29 was found contaminated with sulphur dioxide, in violation of Japan’s Food Sanitation Law.

The authorities ordered the consignment to be abandoned or returned.

We don’t know what consequences such a violation of Japan’s Sanitation Law would mean for Zhangzhou Meisei Foods’ business prospects in Japan.

Why did Yamada buy this stake from the CEO’s cousin so soon after the contamination scare?

Management ReplyThe incident was an isolated event and Zhangzhou Meisei's exports have not been affected. We had engaged in negotiations with Meisei for a period of time and we were assured that this would in no way affect their business and operations. More importantly, we recognise the synergy that the Proposed Acquisition can bring to both parties.

Question

2. Was this the first time a consignment from Zhangzhou Meisei Foods was found to be contaminated?

Management ReplyWe are not able to comment due confidentiality reasons. However, based on our understanding, this was the first time the incident happened.

Total number of questions in the full story: 8)

We thank the management for the replies.

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