Friday, August 6, 2010

Carlyle Group Positions Yashili for IPO

Carlyle Group affiliate Yashili Group Co. is preparing for an independent public offering. Last year Carlyle acquired a 17.3% stake in Guangdong Yashili Group, a Chinese infant formula maker.

China's tainted infant formula sickened 300,000 babies, killing six infants in 2008. The culprit was melamine, mixed into the milk as a cheap protein substitute.

Note the word parsing by officials in the WSJ article:

Yashili wasn't involved with the mixing of melamine into milk products, but like many Chinese food companies, its supply chain was impacted.

Yashili sells milk products. It is responsible for ingredients obtained from suppliers, especially when they are poisonous. Yashili began as a small workshop, the very supplier that added toxic melamine.

Carlyle's September 2009 investment helped Yashili clean up their tainted supply chain.

Yashili captured contaminated or suspect product from distributors and filmed it being burned. It also used its capital to buy back the product from distributors, something competitors didn't do, Mr. Siewert said. Carlyle's investment helped Yashili flush its supply chain, Mr. Siewert said.
Getting product back from distributors in America is known as a recall. It's a cost of poor quality, brought on by bad management theory and practices. Chinese greed combines horrifically with private equity underwriter's (PEU's) targeted 30% annual returns. The 30% does not include PEU management fees or special dividends/distributions.

It's no wonder Yashili had to raise prices:

It has had to raise prices to cover the cost of the clean-up, a common theme across the industry, according to Mr. Siewert.
Yashili also had to position for the independent public offering. That means burnishing up financials, especially the revenue numbers.

When The Carlyle Group made its investment nearly a year ago, it promised to institute a world class quality panel. In September 2009 Carlyle committed to:

Strengthening quality control measures under the guidance of a newly-formed Food Quality and Safety Advisory Committee (FQSAC), composed of leading international and domestic experts.

Newly formed? Not in 2009, as promised. The head of the six person panel committed to the job, after visiting in July 2010.

The group of experts gathered by Carlyle will help Yashili ensure the quality of its products.

I thought that was management's job. Let's hope Carlyle's experts understand profound knowledge. The Carlyle Group clearly doesn't, at least in regards to Vought Aircraft, Lifecare Hospitals, SemGroup, Synagro Technologies, Texas Enterprise Fund grants and pension "pay to play" practices.

Will they flip their Yashili shares in the IPO? If so, Carlyle's great cash in continues.

Update: A Chinese state-owned newspaper published by the country's Ministry of Justice, claims that Yashili, a Chinese dairy, repackaged 30 tonnes of contaminated milk powder as new product.