China’s Mengniu to buy baby formula maker Bellamy’s for $1B

One of China’s biggest dairy companies is gearing up for a massive takeover of an Australian baby formula maker.

Mengniu Dairy has offered 1.5 billion Australian dollars ($1 billion) to buy infant formula maker Bellamy’s Australia, the companies said Monday. Bellamy’s said its board had unanimously recommended shareholders vote to accept the all-cash bid, which represented a 59% premium to the company’s closing price on Friday.

The deal is still subject to approval from Australian regulators.

Shares in Mengniu slumped 2.8% in Hong Kong on Monday, dragging down the broader Hang Seng Index, which was down about 1%. Shares in Bellamy’s soared 55% in Sydney.

Mengniu is “an ideal partner for our business. It offers a strong platform for distribution and success in China, and a foundation for growth in the organic dairy and food industry in Australia,” Andrew Cohen, Bellamy’s CEO, said in a press release.

Bellamy’s brand position and supply chain are “critical to Mengniu,” said Jeffrey Minfang Lu, Mengniu’s CEO, adding that the Chinese company wants to grow Bellamy’s sales in Australia and the broader Asia Pacific region.

Earlier this year, China’s top economic planning body said it wants domestic production of baby formula to be above 60% within three years. Domestic infant and toddler milk formula accounted for about 44% of the market in 2018, according to data analytics company Nielsen.

China’s National Development and Reform Commission also said the country will improve the quality of infant formula to boost consumer confidence, state-run news agency Xinhua reported in June.

Infant formula has been a source of controversy in China in the past.

In 2008, tainted milk in China killed at least six babies and sickened about 300,000 others. Raw milk used to produce powdered baby formula had been watered down and the chemical melamine was added to fool quality checks. More than a decade later, some Chinese parents are still wary of local dairy brands.

The global baby food and infant formula market was worth $52.9 billion in 2018, according to a recent report from China was the largest importer of baby formula, according to the market research firm.