Chinese Dairy Giant Realizes Cheesy Ambitions
What’s new: Dairy products provider China Mengniu Dairy Co. Ltd. plans to increase its stake in cheese producer Shanghai Milkground Food Tech Co. Ltd. from 5% to 23.8% by subscribing to new stock issuances worth 3 billion yuan ($458.2 million).
The deal would make Mengniu the controlling shareholder of Milkground, according to a statement by the cheese-maker on Sunday, marking the dairy giant’s ambition to broaden its business scope to cheese products as domestic demand for such goods has risen.
Over 90% of the funds raised through the deal will be used for three cheese processing factories in Shanghai and the northern cities of Changchun and Jilin, while the rest will be earmarked to replenish cash flow. The deal is still awaiting for the regulator’s approval.
What’s the background: China’s cheese consumption is lower than most other countries. Data from consulting firm Euromonitor indicated Mainland China consumed just 0.03 kilogram of cheese per capita annually, while the figure is 1.09 kilograms for Japan and 5.66 kilograms for the U.S.
The country’s cheese market also remains fragmented, making it possibly attractive to domestic diary companies to secure a bigger share through acquisitions.
Last month, Mengniu was forced to give up a $600 million bid for the Australian branch of the Japanese drink giant Kirin Holdings Co. Ltd., following changes to Australia’s foreign investment laws and fraying relations between Beijing and Canberra.
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