China Mengniu Dairy

Dairy pair expected to reveal milk deal

Suspension of share trading for Mengniu and Yashili seen as prelude to joint move

PUBLISHED : Friday, 14 June, 2013, 12:00am
UPDATED : Friday, 14 June, 2013, 3:49am

Trading in the shares of two Hong Kong-listed mainland dairy firms was suspended yesterday, triggering market speculation about a possible consolidation in the fragmented formula milk market in China.

Trading in China Mengniu Dairy, one of the largest milk product manufacturers in mainland China, was suspended at around noon, and within minutes of the announcement on the local stock exchange, trading in Yashili International, one of the top 10 milk formula brands in the nation, was also suspended.

Mengniu, which was hurt by a series of scandals over tainted milk over the past three years, was likely to be bidding to restore its brand image and to be exploring the milk formula market, a food and beverage analyst said.

Yashili, which mainly produces milk products for pregnant women, has approximately 4 per cent of the mainland milk formula market, according to Euromonitor, the global market research company. The market leader, Mead Johnson, has a share of just 13 per cent, followed by Beingmate (10 per cent), Dumex (8 per cent), Yili (7 per cent), and Wyeth (7 per cent).

Mengniu has an even smaller interest in the production of milk formula, through a joint venture with the Danish company Arla Foods, which owns 5.9 per cent of Mengniu.

Market speculation yesterday was that either Mengniu will acquire a stake in Yashili, or the two would form a strategic alliance.

A Yashili spokesman said the firm did not comment on market rumours.

Both companies said in separate filings last night the suspension was requested because they were about to announce inside information.

Mengniu founder Niu Gensheng offloaded most of his stake in the company and surrendered its management to Cofco, the largest edible oil and grain dealer on the mainland, in 2011.