IN an attempt to get a foothold in the global market, Bright Dairy and Food Co yesterday said it plans to buy a 51 percent stake in New Zealand milk processor Synlait Milk Ltd for 382 million yuan (US$56 million) - its first overseas acquisition.
The deal, if completed, is also expected to be the biggest overseas acquisition in China's dairy industry as firms eye high-quality raw material supply amid furious market competition.
Shanghai-based Bright Dairy, the nation's third-largest dairy producer, said it would purchase 26 million new shares of Synlait at NZ$3.15 (US$2.22) per share and become its controlling stakeholder, according to its statement yesterday.
It said buying into Synlait would allow Bright to have a stable and high-quality supply in the overseas market while opening up new opportunities to enter the high-end infant formula market for better profitability.
"New Zealand's dairy production is known for its quality. Besides the new fundraising platform, the supply will allow Bright Dairy to ward off competition from Mengniu and Yili due to the cost advantages and Synlait's advanced expertise," said Zhou Siran, an analyst at China Investment Consultant.
"Taking into account all the benefits, the price is okay but approval from the New Zealand government is crucial."
Shortage of stable raw material supply over the past few years has been a big problem for China's dairy firms which are keen to expand to meet demand.
The importance of raw materials with higher safety requirement is further underlined by the melamine scandal in 2008, when products of major dairy producers were found to contain the dangerous chemical melamine.
Founded in 2005, Canterbury-based Synlait, which gave up a planned US$150 million share sale last year, is seeking funds to build a second plant. It also hopes to expand to Asian markets.
Guo Benheng, president of Bright Dairy, said the deal still needs approval from the governments of China and New Zealand but was confident it will be sealed in the fourth quarter of this year.
Bright Dairy is owned by Bright Foods (Group) Co, Shanghai's largest food group that earlier lost a bid for the sugar unit of Australia's CSR Ltd. Bright Dairy shares in Shanghai rose by the 10 percent limit to 8.23 yuan yesterday.