Sanlu Group

Three firms allegedly angling to buy Sanlu

PUBLISHED : Friday, 10 October, 2008, 12:00am
UPDATED : Friday, 10 October, 2008, 12:00am


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At least three mid-sized mainland dairy companies have expressed interest in bailing out the troubled Sanlu Group, whose products triggered the industry-wide milk contamination scandal, according to an industry source.

It is the latest development in Sanlu's fate, after the government had asked Beijing Sanyuan Foods to look into 'an acquisition' as a way to protect dairy farmers' interests last month. That acquisition was widely believed to be Sanlu.

'The negotiation between Sanyuan and Sanlu is on the brink of collapse,' said the source. 'It is the government's order, rather than Sanyuan's own intention, to consider the acquisition.'

The three potential buyers, whose home bases range from Heilongjiang to Guangdong, are eyeing Sanlu's production facilities with the hope of buying them cheaply.

New Zealand's Fonterra Co-operative Group - the world's largest trader in dairy products, which holds a 43 per cent stake in Sanlu - said it retained a strong corporate interest in Sanlu's future.

'We are interested in all suggestions - not ruling out anything that provides a commercially viable solution for Fonterra and its future involvement with and commitment to China,' its spokesman said.

Sanyuan and the other potential buyers stand to gain from the scandal as their products are almost clear of melamine - a chemical that has killed four babies and sickened tens of thousands on the mainland. However, the latest tests indicated that some of Sanyuan's milk formula contained the chemical.

Other industry giants such as Mengniu, Yili and Bright Dairy have been busy trying to shore up their own sales and brand image after their products were found to contain melamine.

'The government wants Sanlu production to resume as early as possible so that individual dairy farmers will stop dumping their milk,' the industry source said.

Since the scandal broke, many large collection facilities have stopped buying fresh milk from dairy farmers.

The source would not disclose the names of the potential buyers, but China Business News reported yesterday that Heilongjiang Wondersun Dairy was one of them. A Wondersun spokesman denied the report.

Yang Fan , a senior analyst with Euromonitor International, said that while Sanyuan, a Beijing-based dairy company, might face challenges digesting Sanlu's assets, it could be a smart purchase by some regional dairy companies seeking to become a major national player.

'Sanlu has good production lines and distribution networks, although its brand has died,' said Mr Yang.

Sanyuan's spokesman declined to comment on the acquisition. Trading of its shares remained suspended.