Mengniu in $1B Bellamy bid

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China's dairy giant Mengniu announced on Monday it had made an acquisition offer to Australian infant formula producer Bellamy in a deal valued at $1 billion, to further penetrate the infant formula and food market while expanding its reach overseas.

Hong Kong-listed Mengniu said it proposed to acquire 100 percent of the issued share capital of Bellamy Australia Limited.

Under the proposed deal, Mengniu would pay A$12.65 ($8.69) per share plus a shareholder dividend, marking a 59 percent premium on Bellamy's closing price.

Bellamy's share price soared by 54.9 percent on Monday to a peak of A$12.98.

Bellamy Chief Executive Officer, Andrew Cohen, said: "Mengniu is a preeminent dairy company in China and an ideal partner for our business. It offers a strong platform for distribution and success in China, and a foundation for growth in the organic dairy and food industry in Australia."

Mengniu Chief Executive Officer Lu Minfang said: "Bellamy's leading organic brand position and Bellamy's local operation and supply-chain are critical to Mengniu."

According to Euromonitor International, China's milk formula market is growing steadily and fast from $23.9 billion in 2018 to a forecast of $32 billion in 2024.

Nestle, Feihe International Inc and Danone are top three in the sector in 2019, while Mengniu and Bellamy ranked 12th and 24th respectively.

Song Liang, an independent dairy analyst, said the move shows Mengniu's strong ambition to penetrate into the organic dairy market, which is booming in China and it is also a chance to build an infant and baby nutrition and food system.

The possible takeover of Bellamy is also an entry ticket for Mengniu to expand its supply chain and capital operations in Australia.

In July, Mengniu agreed to sell all of its 51 percent holding in baby formula and yogurt maker Shijiazhuang Junlebao Dairy Co Ltd as it seeks to concentrate on its core business. In 2018, Junlebao contributed 13.6 percent of Mengniu's revenue and 9.58 percent of its profits.

For Bellamy, the deal is vital for entry into China's formula market, as the Australian brand has not been eligible for infant and baby formula registration in China. It means it cannot manufacture or sell such formula in China. Its 2019 fiscal report shows that Bellamy's revenue was A$266 million, down 19 percent.

Bellamy is likely to benefit from the acquisition of dairy manufacturer Burra Foods in 2016 by Mengniu. Bellamy and Burra are both Australian companies and the latter can provide OEM service to the former, said Miranda Zhou, an analyst at Euromonitor International.

China's dairy industry has been expanding its reach to global markets in recent years.

Inner Mongolia Yili Industrial Group-the largest dairy producer in China and Asia-has prioritized global dairy resource security capacity and a management team with global vision, covering areas including raw materials, global cooperation and overseas dairy source development, as well as an international management team.

In August, Yili acquired New Zealand's second-largest dairy cooperative Westland Co-operative Dairy Co Ltd after finally clearing all the regulatory hurdles.

Yili products are sold under more than 1,000 brands and Yili owns more than 130 branches or subsidiaries. Yili acquired Oceania Dairy Group of New Zealand in 2013. It has since invested approximately $660 million in establishing milk powder, infant formula and UHT production lines for Oceania.

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