China Modern Dairy : (018) Letter from the CMD Board (English)

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China Modern Dairy Holdings Ltd.

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(lncorporated in the Cayman Islands with limited liability)

(Stock Code: J 117)

Executive Directors:

Ms. GAO Lina (Deputy Chairman and Chief Executive Officer)

M r. HAN Ch un lin (Chief Operation Officer)

Non- Executive Directors:

Mr. YU Xu bo (Chairman) Mr. WOLHA RDT Julian J uul Mr. HUT Chi Kin, Max

Mr. ZHA NG Ping Mr. SUN Yugang

Registered office:

Maples Corporate Services Lim ited PO Box 309, Ug land House

Grand Cay m an, KY l -1 104 Cayman Islands

Principal place of business in Hong Kong:

Unit 2402, 24th Floor, All iance Bu ild ing 130- 136 Connaught Road Central

Sheung Wan Hong Kon g

Independent Non-Executive Directors:

Mr. Ll Shengli

M r. LEE Kong Wai Conway M r. KANG Yan

Mr. ZOU Fei

14 February 20 l 7

To the CMD Shareholders and the Optionholders

Dear Sir/Mad am,

CONDITIONAL MANDATORY CASH OFFERS BY UBS AG AND DBS ASIA CAPITAL LIMITED FOR AND ON BEHALF OF

CHINA MENGNIU DAIRY COMPANY LIMITED TO ACQUIRE ALL THE ISSUED SHARES IN CHINA MODERN DAIRY HOLDINGS LTD. (OTHER THAN THOSE ALREADY OWNED OR AGREED TO BE ACQUIRED BY CHINA MENGNIU DAIRY COMPANY LIMITED AND PARTIES ACTING IN CONCERT WITH IT)

AND

FOR CANCELLATION OF ALL OUTSTANDING OPTIONS IN CHINA MODERN DAIRY HOLDINGS LTD.

INTRODUCTION

Reference is m ade to the Joint Announcement. On 4 January 2017 , Mengn i u entered into the SPA with Success Dairy II , pursuant to wh ich Mengniu has cond itionally agreed to acq uire

• For idenlificalion purpose only

and Success Dairy II has condit ionally agreed to sell 965,465,750 CMD Shares (being the Subject Shares) for a consideration of HK$ 1,873,003,555, payabl e in U.S. dol l ars, wh ich is equ i valent to US$241 ,475 ,350, as determ ined by the Exchange Rate. The consideration represents HK$ 1.94 per CMD Share, which is equ i valent to US$0.25 per CM D Share, as determ ined by the Exchange Rate, assum in g the Investor Opt ion is exercised.

As at the date of the Joint Announcement, Success Dai ry 11 held the Existi ng CMD Shares and the In vestor Opti on. An irrevocable notice to exercise the In vestor Option was served on CM D by Success Dairy II on 28 December 2016, wh ich is cond itional upon , among other th ings, Mengniu Shareholders havin g approved the Transact ion. Upon exercise of the Investor Option and as clarified by CM D's an nouncem ent dated 21 December 2016, CMD shall issue 488,036,61 8 CM D Shares to Success Dairy J I.

Mengniu Shareholders approved the Transaction by way of ordinary resol ution at the EG M. On 6 February 2017, CM D issued the 488 ,036,6 18 New CMD Shares to Success Dairy J I pursuant to the terms of the Investor Option. Upon such issuance , Success Dairy J I owned 965,465 ,750 CM D Shares, representing 15.7% of the total issued share capital of CMD on a fully di l uted basis. ln addition, the l isting approval of the New CMD Shares has been granted by the Stock Exchange on 23 December 2016, and has not been withdrawn as at the Latest Practicab l e Date.

SPA Completion took place on 7 February 2017 whereby the Subject Shares were transferred from Succe ss Dai ry I I to Mengn i u SPY, a nom i nee of Mengniu .

I mmediately fol lowi ng the SPA Com pletion but before the commencement of the Offers, Men gniu and its Concert Parties beneficiall y owned an aggregate of 2,3 13,368,750 CMD Shares, representing approximately 37.7% of the i ssued share capital of CMD as at the Latest Practicab le Date. Accord ingly, upon the SPA Comp letion, Mengn i u is req uired to make (i) a cond itional mandatory cash offer for all the i ssued CMD Shares not already owned or agreed to be acquired by Mengn i u and its Concert Parties pursuant to Ru le 26. 1 of th e Takeover s Code, and (i i ) an appropriate offer to the Optionhold ers for the cance l l ation of the outstand ing CMD Options pursuant to Rule 1 3 of the Takeovers Code.

The purpose of the Composite Document of wh ich this letter forms part i s to provide you with, among other matters, the terms of the Offers, information relating to the CM D Group and Mengniu , as well as to set out (i) the letter from the Indepen dent Board Comm i ttee contai n ing its recomm endations to the CM D Shareholders an d the Optionholders in respect of the Offers; and

1. the letter from the Ind epend ent Financial Ad viser contai n ing i ts advice to the Independent Board Com m ittee in respect of the Offers.

   Terms used in this letter shall have the same meanings as defi ned 111 the Composite Document u nless the context otherwise requi res.

   THE OFFERS

   The "Letter from U BS and DBS" as set out on pages 9 to 26 of the Composite Documen t contains the information in respect of the Offers and the principal terms of the Offers are extracted below. You are recommended to refer to the "Letter from U BS and DBS", Appendix I to the Composite Document and the accom panyi ng White Form of Share Offer Acceptance and Pin k Form of Option Offer Acceptance for further detai ls.

   U BS as the financial adviser an d DBS as the joint financial adviser are maki ng the Offers for and on beha lf of Mengni u to al l the CMD Shareholders for all the issued CM D Shares (other than those already owned or agreed to be acq uired by Mengn iu an d its Concert Parties) and to the Optionholders for the cancellation of al l outstand ing CMD Options in compl iance w ith Ru les 26 .1 and 13 of the Takeovers Code respecti vely, on the followin g basis:

   The Share Offer

   For each Offer Share . . . . . . . . . . . . . . . . . . . . . . . . . . . HK$ l .94 or US$0.25 in cash

   The Offer Price of HK$1 .94 or US$0.25 per each Offer Share u nder the Share Offer is equivalent to the consideration per CMD Share of HK$ l .94 or US$0.25 pursuant to the SPA, assuming the I n vestor Option is exercised and as d eterm ined usi ng the Exchange Rate.

   The Option Offer

   For each CMD Option with exercise

   price below the Offer Price . . . . . . . . . . . . . . . . . . . . . . HK$1.94 or US$0.25 less

   the exercise price in respect of the relevant CMD Option i n cash

   For each CMD Option with exercise

   pr ice above the Offer Price . . . . . . . . . . . . . . H K$0.000 l or US$0.000013 in cash

   The Option Offer wi l l be extended to all el igible Option holders in accordance with the Takeovers Code.

   INDEPENDENT BOARD COM M ITTEE AND INDEPENDENT FIN ANCIAL A DVISER

   Pursuant to Rule 2.1 of the Takeovers Code, the Independent Board Comm ittee, comprising Mr. SUN Yugang, a non-executive CMD Director , and all the i ndependent non­ execut i ve CMD Directors, namel y, Mr. LI Shengli, Mr. LEE Kong Wa i Conway, Mr. KANG Yan and Mr. ZOU Fei , was formed to advise the CMD Sharehol ders and the Optionholders in relation to the terms and cond itions of the Offers.

   Mr. YU Xubo, Mr. WOLHARDT Jul ian J uu l, Mr. HUI Chi Ki n Max and Mr. ZHANG, Ping, all of wh ich are non-executi ve CM D Directors, do not form part of the Indepen dent Board Comm ittee d ue to their respecti ve interest in the Offers as follows:

2. Mr. YU X u bo is currently the president of COFCO Corporation, the controlling shareholder of Mengn i u;

3. Mr. WOLHARDT J ul ian J u ul is currently a director of Success Dairy II and he has been a member of KKR Asia Lim i ted, an affi liate of KKR Ch ina Growth Fund L.P., a subsidiary of wh ich is New Dairy In vestment Ltd , one of the ulti mate sharehold ers of Success Dai ry 11, until December 31 , 2016, and that since January I , 2017 he has been an advisor of KKR Asia Lim ited;

4. ) Mr. HUI Chi Kin Max is currently a managing director of CDH China Management Company Li m i ted, the manager of CDH Fund IV , L.P., wh ich whol ly-owns Crown Dai ry Hold ings Limited, one of the ulti m ate shareholders of Success Dairy 11; and

5. Mr. ZHANG Pi ng is a mem ber of the senior management of Mengn i u.

Somerley Capital has, with the approval of the Independent Board Committee, been appointed as the Independent Financial Adviser to advise the Independent Board Comm ittee in respect of the Offers and i n partic ular as to whether the terms of the Offers are fair and reasonable and as to acceptance pursuant to Ru le 2.1 of the Code.

The full texts of the letter from the Independent Board Comm ittee addressed to the CMD Shareholders and the Optionholders and the l etter from the Independ ent Fi nancial Adviser addressed to the Independent Board Committee are set out on pages 36 to 37 and pages 38 to 64 respectivel y in the Composite Document. You are advised to read both letters and the ad dit ional information contained i n the append ices to the Composite Document carefully before taking any action i n respect of the Offers.

FU RTHER DETA I LS OF TH E OFFERS

You are advised to refer to the "Letter from the Independent Financial Adviser" as set out on pages 38 to 64 of the Composite Document, Appendi x I of the Composite Document, Wh ite Form of Share Offer Acceptance and Pink Form of Option Offer Acceptance for further terms and cond itions of the Offers an d the procedures for acceptance and settlement of the Offers.

IN FORMATION OF CMD

CM D is a company incorporated i n the Cayman Islands with l im i ted liabili ty, and CMD Shares have been l isted on the Main Board of the Stock Exchange since 20 10 (Stock Code: 1 1 17). CMD Group is the largest dairy farm ing company i n terms of herd size as we l l as the largest raw milk producer in Ch i na. It is headquartered i n Ch ina's eastern provi nce of Anh ui, and its primary business is raising dairy cows and selling raw m il k to branded dairy com pan ies for processin g into consumer dairy products. As at 30 J une 2016, CM D Group had 27 farms i n operation in China w ith approximately 220,493 dairy cows i n total. CM D Group 's farms are situated across the PRC in strategic geographical locations that are close to downstream dairy product processi ng plants and feed supply sources.

The table below sets forth a summary of certai n consol idated financial information of CMD