New Zealand’s Fonterra to take stake in China’s Beingmate

New Zealand's Fonterra today said it would take a stake in Chinese baby food and formula maker Beingmate Baby and Child Food Co Ltd.

This is Fonterra's first tie-up with a Chinese processor since its involvement in a tainted infant formula scandal in 2008 (See: China bans New Zealand milk powder on fears of botulism contamination).

Fonterra's stake acquisition in the two Chinese companies is a a continuation of the trend of foreign dairy producers partnering with established Chinese players in a bid to increase market share in China's fast-growing dairy market.

French dairy giant Danone SA in February paid $665 million to hike its stake in China Mengniu Dairy Co Ltd.

According to Fonterra Cooperative Group Ltd, the world's largest dairy exporter, it would take a stake of up to 20 per cent in Beingmate China's biggest maker of infant milk formula, at 18 yuan per share, a 25 per cent premium to the stock's last closing price.

Fonterra added its total investment in the partnership worked out to around $514 million, including proceeds from the sale of a stake to Beingmate, in an Australian plant.

It added, it would invest around $463 million to boost dairy processing capacity in New Zealand.

Chief executive Theo Spierings said Fonterra, which was involved in the botulism scare last year, would spend about NZ$615 million ($514 million) for the stake.

The companies would then form a joint venture to sell Fonterra's premium Anmum baby formula brand in China.

New Zealand already exported the baby formula worth around $3.0 billion a year to China, sourced mainly from Fonterra.

He added the infant formula market in China was worth about NZ$18 billion today and was expected to be worth NZ$33 billion by 2017.

He added, the growth was driven by increasing urbanisation, higher disposable incomes, a preference for premium brands and the relaxation of the one-child policy.

According to Fonterra, it would also invest NZ$555 million in new dairy processing facilities in New Zealand, boosting capacity to help meet burgeoning global demand.