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Sanyuan may take over tainted milk brand Sanlu
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Shares in Shanghai-listed Beijing Sanyuan Food Co.Ltd., a major dairy producer, were suspended on Friday at the company's request after it received a relevant department's notice to do research on a merger scheme.

The suspension will continue until a decision is made on any possible merger, according to a company announcement.

Wang Ling, secretary of the board of Sanyuan, said on Friday that it was not possible to say when there would be any further announcement.

Sanyuan, based in China's capital, stands clean in the recent tainted milk scandal. As a result, its share price and milk sales have soared.

Its shares rose by the daily 10-percent limit for six consecutive trading days since Sept. 18, closing at 5.59 yuan (82 U.S. cents) on Thursday, a gain of 64.4 percent in the short period.

The Sanlu Group, a leading Chinese dairy producer based in northern Hebei Province, admitted on Sept. 12 that it had found some of its baby milk powder products were contaminated with melamine.

Melamine-contaminated baby formula has killed at least three infants and left more than 53,000 with various urinary tract problems, including kidney stones. About 13,000 infants are still being treated for complications in hospitals.

The General Administration of Quality Supervision, Inspection and Quarantine has already sent 1,644 teams and 387 working groups across the country to inspect the production process of dairy plants.

Quality sample checks have been conducted on the products of other major brands including Mengniu, Yili, Guangming and Sanyuan.

The Sanyuan suspension "should not be insignificant," according to Guo Changsheng, a securities analyst in Shanghai. Regardless of whether the company merged with another, the dairy industry was in for a shake-up in the aftermath of the tainted milk scandal, Guo added.

The phrase in Sanyuan's suspension request -- "related authorities' notice" -- indicated to industry observers that the move was related to the melamine incident.

Sanyuan products that tested clean have been much better received on domestic markets since the tainted milk scandal broke out. Over the past few days, Sanyuan's liquid milk sales tripled.

The company sells about 70 percent of its products in Beijing and the remainder in Shandong, Shanxi, Hebei, Henan and some southern areas.

Some analysts have estimated that Sanyuan might take over some smaller enterprises or buy a stake in a company such as Sanlu, which has been hit hard by the scandal.

Sanlu is said to be hovering on the brink of bankruptcy. Sources at the company estimated that Sanlu would recall more than 10,000 tons of milk powder involving more than 700 million yuan in refunds.

Analysts said it was unlikely that Sanyuan would buy stakes in such big companies as Mengniu and Yili. Nonetheless, rumors that Sanyuan might be interested helped Yili's share price rise 2.77 percent to 9.28 yuan on Friday.

(Xinhua News Agency September 26, 2008)

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