Jahwa Plans to Acquire Tommee Tippee

On the evening of June 8, Shanghai Jahwa Corporation announced that its wholly-owned subsidiary, Abundant Merit Limited (Merit), was planning to acquire the 100% equity of Cayman A2, Ltd. (Cayman A2) and related shareholder equities with US $ 293 million of cash. Cayman A2, a company of baby care products, is owned by Arianna Global Limited (Arianna), a wholly-owned subsidiary of Shanghai Jahwa United Co., Ltd's controlling shareholder, Shanghai Jahwa (Group) Co., Ltd.

Shanghai Jahwa United Co., Ltd noted that this acquisition would benefit Shanghai Jahwa United Co., Ltd in its implementation of the mid- to long-term development strategy, namely, to seize the opportunity of rapid growth in baby product market, to introduce internationally renowned baby product brands for a good synergy with existing baby care business, and then to create an international baby care platform and lay the foundation for future expansion of overseas markets.

Acquire an internationally renowned brand

According to relevant agreement, the consideration payable for the rights to acquire the preferred shares of Cayman A2 is US $ 39 million, the consideration payable for the rights of ordinary shares is US $ 0.5 billion and the consideration payable for shareholders' bonds is US $ 204 million.

As relevant information shows, Mayborn Group Limited (an subsidiary entity of Cayman A2) and its subsidiaries (hereinafter Mayborn Group) are principally engaged in the production and sales of baby feeding tools and nursing products, and own the Tommee Tippee brand.

Mayborn Group's main products include baby bottles and accessories, bath products, diaper products, bibs, baby cups, forks and cutlery, pacifiers and teethers, disinfecting products, custody products and others.

The company has a good product R&D capability, with leading position in product design, testing, cost optimization and other aspects of product R&D. On the basis of traditional products, the company has launched a series of new products including high-tech baby video surveillance tablet.

Mayborn Group has greatly increased its procurement efficiency by integrating suppliers in the UK and limiting the supply of materials needed. At the same time, it does not over-rely on any individual supplier. Instead, it adopts different suppliers in different regions of the world. At present, the main materials are produced by the company's factories in Morocco and China.

The company currently has multiple distribution channels in many countries. In the UK, United States and other major sales countries, the company sells products through department stores, mass retail stores, outlets , online stores and other terminal sales channels.

The brand Tommee Tippee has enjoyed steady growth since 1965 and in 2008 the brand expanded worldwide, becoming one of the best infant product brands in the UK and a worldwide leading brand.

Mayborn Group applies different brand strategies in different markets. In the Chinese market, Tommee Tippee will leverage the distribution channels of Shanghai Jahwa United Co., Ltd to create a high-quality product brand for mid- to high-end customers.

Promote the mid- to long-term development strategy from three aspects

As the largest acquisition in the history of Jahwa, the acquisition will help implement the company's mid- to long-term development strategy.

First of all, this acquisition is conducive to seizing the opportunity of rapid growth in baby product market. Data show that China's core baby product (infant feeding) market in 2015 was estimated to be about RMB 13.2 billion yuan and is expected to continue to grow at an average annual rate of about 15% during 2015-2020. China is the most important driver of revenue growth for the target company in 2017 and 2018.

Secondly, the introduction of an internationally renowned baby brand will bring about good synergy with the existing baby care business of Shanghai Jahwa United Co., Ltd. The target company's products officially entered the Chinese market on April 27, 2017. In order to quickly enter the Chinese market and win a certain market share, the target company will first launch baby bottle products which feature in both large output and large market demand, and build its brand image among Chinese consumers based on the distribution channels and market visibility of Shanghai Jahwa Corporation and also through advertisements and marketing, to attract consumers to buy products of Tommee Tippee. The market in China is huge and the mid- to high-end market is expected to contribute fast revenue growth. If the target company becomes a subsidiary of Shanghai Jahwa United Co., Ltd, its business in China will be fully integrated into the marketing network of Shanghai Jahwa Corporation, benefiting from the leading position of Shanghai Jahwa United Co., Ltd in Chinese market.

Third, the transaction will help build an international baby care platform and lay the foundation for further expansion of Shanghai Jahwa United Co., Ltd in overseas markets in the future. Mayborn Group's products are sold in the United States, Europe, Australia, the Middle East, Africa and Asia.

Tommee Tippee is the industry leader in its birthplace, the UK market, and it takes about 40% of the market share, ranking the first. Tommee Tippee is considered a mass brand in the United Kingdom, while in the UK the mass brand market accounts for 80% of the overall market. According to relevant analysis, the total market for baby products in the UK  was estimated to be £ 235 million in 2016 and it is expected to grow at an average annual rate of 2.6% from 2015 to 2020. Tommee Tippee is expected to achieve a revenue of approximately RMB 530 million and RMB 543 million respectively for 2017 and 2018 in the UK.

In the U.S. market, Tommee Tippee accounts for about 4% of the highly-dispersed baby product market. The US market for baby products in 2016 was estimated to be £ 850 million and is expected to continue to grow at an average annual rate of 3.3% during 2015-2020. The North American market is a very important development area for Tommee Tippee and it is estimated that its operating revenue will reach approximately RMB 285 million and RMB 313 million respectively in 2017 and 2018.

In addition, Tommee Tippee has a very high reputation in Australia and New Zealand. According to the company's business plan, in 2017, it will vigorously strengthen its expansion of pharmacy retail outlets and achieve synergies in New Zealand. It is expected that after the investment phase in 2017, 2018 will see the return of revenue growth. Revenue from Australia and New Zealand is expected to reach approximately RMB 133 million and RMB 15,200 in 2017 and 2018 respectively.

In recent years, Shanghai Jahwa Corporation has achieved high penetration into mother and baby channels through the development of self-owned brand Giving, acting as agent for Kao, and other businesses. The company currently controls a system of nearly 4,000 mother and baby product stores offline. For young mothers who prefer online shopping, the company also has a wealth of online resources, and has entered strategic cooperation with both JD.COM and TMAIL.COM. With the rapid growth of e-commerce, revenue from online sales has accounted for nearly 20% of the revenue from self-owned brands.

On June 7, Tommee Tippee brand held a press conference, announcing its settlement in the top omni-channel sales platform of mother and bay products, “Kidswant”. The powerful combination of the two mother and baby product brands will help each other to absorb high-quality elements and complement each other to open up a new pattern in China's mother and baby product market.

To sum up, this transaction will help Shanghai Jahwa United Co., Ltd and Mayborn Group to form a synergistic effect in baby care business. They will seize the good opportunity of market growth and explore the overseas markets for the two companies, which is in line with the mid- to long-term development strategy of Shanghai Jahwa United Co., Ltd.