Mengniu mulls bid for Pfizer milk unit

PUBLISHED : Tuesday, 25 October, 2011, 12:00am
UPDATED : Tuesday, 25 October, 2011, 12:00am


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China Mengniu Dairy is considering a bid for Pfizer's infant nutrition business, which is about twice the size of the mainland's biggest dairy firm.

The Financial Times reported on Sunday that the dairy company was in talks with the bank UBS to bid for the American health-care giant's US$10 billion nutrition unit, the owner of popular infant formula brand Wyeth.

Mengniu shares fell 5.92 per cent yesterday morning before closing at HK$25.75, down 1.72 per cent on the day, against the Hang Seng Index's 4.14 per cent gain.

Mengniu filed a statement to Hong Kong stock exchange yesterday, saying the company 'is not in any direct negotiation with Pfizer, and currently has no concrete arrangement or plan in connection with the bid'.

Yet it also said Pfizer's disposal of its infant nutrition business would capture the attention of the dairy industry and Mengniu would 'closely monitor the development'.

Analysts said it would be hard for Mengniu, with a market capitalisation of about HK$44 billion, to win the deal considering its relatively small size.

Several other global dairy giants including Danone, Nestle, Mead Johnson Nutrition, HJ Heinz and Abbott Laboratories are also potential buyers, according to the Financial Times.

Pfizer, advised by Morgan Stanley and Centerview on the sale or spin-off of the nutrition unit, was expected to send out information to possible buyers next month, but the process had moved more slowly than expected, the paper said.

Mengniu, backed by state-owned food giant Cofco, earlier said that it was looking for opportunities to expand into overseas markets, especially in the Asia-Pacific region. The main acquisition targets are in yogurt and baby formula industries, areas in which Mengniu is relatively weak.

'I don't think this is an attractive deal for Mengniu,' said a food and beverage analyst.

'It's just too expensive for the company considering its much smaller market value. In addition, the sales growth of Wyeth products is actually slower than Mengniu's.'

China's dairy makers have been seeking overseas partners to gain access to safe sources of raw milk since the industry was hit by the melamine poisoning scandal in 2008.

Last year, Shanghai-based Bright Dairy paid 382 million yuan (HK$466 million) to take a 51 per cent stake in New Zealand's Synlait. Wahaha Group, one of the largest mineral water and soft drink producers in China, also worked with a Dutch dairy company to offer baby formula in the domestic market.

According to Mengniu's interim results, milk powder only contributed 1.1 per cent of sales revenue in the six months to June.

Earlier this year, Mengniu repackaged the milk powder products it jointly launched with Denmark dairy company Arla Foods in an effort to capture a bigger share of the high-end market.