Is Sanyuan going to win the takeover of milk scandal firm Sanlu Group? It's a question even Zhang Fuping, the board chairman of Sanyuan, can't answer for sure. Although it's been three months since Sanyuan first considered the acquisition, the takeover of Sanlu remains shrouded in uncertainty.

Industry insiders told China Business Journal it was government encouragement instead of business considerations that originally led Sanyuan to troubled Sanlu. This was in line with Sanyuan's stock trading suspension announcement on September 25, in which it said that it had received a notice from higher authorities to consider a merger deal.

After the milk scandal broke out, the Beijing municipal government called an internal meeting to discuss the prospects of Sanyuan taking over Sanlu. Zhao Jifeng, former deputy general manager of Sanyuan, was invited to the meeting. Zhao recalled that meeting attendees agreed that Sanyuan should act actively but also prudently in the merger.

Analysts said that the Beijing government strongly backed a Sanyuan/Sanlu merger because it was grateful for Hebei's water supply support and wanted to help out Hebei in this milk scandal. Beijing Mayor Guo Jinlong was reportedly very concerned and has been keeping a close eye on the issue.

As a matter of fact, the acquisition of Sanlu may well be a golden opportunity for Sanyuan to extend its market share and assure development. Since Sanyuan's purchase of Beijing Kraft Food Corp in 2001, it has achieved little growth. Taking over Sanlu might be a "last shot" – as some industry analysts have expressed it - for Sanyuan to expand in the dairy industry.

For more information, please read the full story in Chinese:

http://www.cb.com.cn/News/ShowNews.aspx?newsId=21270

(China.org.cn by Yan Pei, January 4, 2009)