China’s Mengniu Cleared to Buy Australia’s Lion Drinks & Dairy

(AFR) — China Mengniu Dairy Co. Ltd. has been given the green light by Australia’s competition regulator to acquire Lion-Diary & Drinks Pty Ltd. as it beefs up its presence across the country.

The Australian Competition and Consumer Commission (ACCC) said Friday it will not oppose the proposed acquisition by Mengniu after closely considering the potential impact on competition.

Mengniu is proposing to acquire Lion’s raw milk processing facilities in Australia, two of which are located in Chelsea and Morwell in Victoria, where fresh and flavored milk, fresh cream, yoghurt, sour cream and dairy desserts are produced.

Lion had been trying to sell its dairy portfolio since 2018, which includes Big M, Dairy Farmers, Pura, Berri and Daily Juice brands.

As revealed The Australian Financial Review’s Street Talk column, Mengniu and Lion owner, Kirin, agreed a $600 million deal in November hot on the heels of the controversial buy of Bellamy’s Australia Ltd.

Mengniu also owns Australian dairy processor and exporter Burra Foods Pty Ltd., which has an existing raw milk processing facility located at Korumburra, Victoria, and was acquired in 2016.

The ACCC’s investigation examined whether the proposed Lion acquisition would have an impact on competition for the purchase of raw milk from dairy farmers in the Gippsland region.

“While Burra and Lion D&D compete for the acquisition of raw milk, they are not close competitors, and our investigations concluded that dairy farmers are unlikely to switch between the two,” ACCC deputy chairman Mick Keogh said. “The level of aggregation from the proposed acquisition will be relatively low, with Burra and Lion D&D combined acquiring less than 25 per cent of raw milk in Gippsland. Two other large raw milk buyers remain in the Gippsland region, Saputo and Fonterra, as well as some smaller processors.”

The ACCC also found there was considerable spare processing capacity at other raw milk processors in the Gippsland region, giving farmers alternative potential buyers for their milk.

A spokesperson for Mengniu said the transaction remains scheduled to complete in the first half of 2020.

“We are pleased with the decision by the ACCC to not oppose the proposed acquisition of Lion Dairy & Drinks and continue to work through other regulatory approval processes,” he said.

The proposed deal still needs approval from the Foreign Investment Review Board, and comes at a tricky time for those offshore buyers looking to snap up Australian food processing businesses.

However, Lion’s dairy and drinks business has already been foreign owned for 15 years, first by the Philippines’ San Miguel and more recently by Japan’s Kirin, so is not likely to run into opposition.

Unlike the $1.5 billion deal to buy infant formula business Bellamy’s by the Hong Kong-listed Mengniu, which was met by controversy.

Mengniu declined to comment on any impacts of the deadly coronavirus shaking the globe and Australian companies, many of which have downgraded earnings this season due to risks associated with the virus.

This story was first published in The Australia Financial Review.