Milk Products
Milk for sale in a store in New York, April 7, 2011. Reuters/Lucas Jackson

New Zealand's flagship company and world’s largest dairy products exporter, Fonterra Co-operative Group Limited, has completed the partial tender offer to acquire 18.8 percent stake in leading Chinese infant formula manufacturer, Beingmate Baby & Child Food Company Ltd. The transaction is expected to be closed in the coming days. The acquisition is part of the New Zealand company's strategy to boost its presence in China’s branded dairy market.

Chief executive Theo Spierings described it as “a game changer that will provide a direct line into the infant formula market in China ." The chief financial officer also expressed satisfaction that the partnership could proceed on the basis of the 18.8 percent stake. This was stated in CFO Lukas Paravicini's statement, reports Reuters.

China Market

China is Fonterra’s biggest market, where a quarter of New Zealand's dairy exports are exported. The infant formula market in China is worth about NZD $18 billion today and that is expected to grow to NZD $33 billion by 2017. Fonterra is keen to feed the growing demand of China for milk products, particularly, Formula products. Fonterra had announced its plans in August 2014 to buy 20 percent stake in Beingmate as a deal to sell New Zealand milk products in China.

In the view of some analysts, the smaller stake of 18.8 may have been due to a fall in the New Zealand dollar, after the offer was announced. Though the price per share is much in line with the initial plans, the total price of around NZ$752 million is 22 percent higher than initially forecast, and is reflection of the weaker currency. Fonterra, is anticipating Chinese dairy consumption to increase 4 per cent a year through 2020.

Joint Venture Coming

Now the deal will be followed by both Fonterra and Beingmate proceeding to the the next phase of partnership, to create a joint venture to buy Fonterra's Darnum plant in Australia and seal a distribution deal that will make Beingmate the exclusive distributor of Fonterra's Anmum brand in China, added CFO Paravicini, according to a report by Stuff.Co.Nz.

The partnership seeks to create a fully integrated global supply chain from the farm gate to China's consumers, using Fonterra's milk pools and manufacturing sites in New Zealand, Australia, and Europe. It may be recalled that Chinese government had imposed tighter regulations on dairy products in 2014, following concerns over food safety.

According to Fonterra's latest global update released on 16 March, New Zealand's milk collection has been down 7 percent in February due to prevailing dry conditions.

(For feedback/comments, contact the writer at kalyanaussie@gmail.com)

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