ACCC clears Chinese takeover of brands like Dairy Farmers and Big M

The Foreign Investment Review Board is facing pressure from independent MP Andrew Wilkie to reject a Chinese dairy giant’s bid for Lion’s dairy and drinks business after the competition watchdog gave the $600 million offer the greenlight.

The Australian Competition and Consumer Commission’s (ACCC) decision not to oppose the deal between China Mengniu Dairy Company and Lion was criticised by Mr Wilkie, who said Australians were concerned about foreign ownership of ‘‘leading brands’’ and strategic assets.

China Mengniu Dairy Company is poised to acquire Lion's dairy and drinks business.Credit: Paul Harris

"Australians are also concerned with the Chinese in particular and their disproportionate involvement in the Australian dairy industry. Clearly it is undesirable that the supply and price of dairy products in Australia is increasingly at the mercy of companies under obligations to the Chinese government," he said.

Mengniu would acquire big-name Australian dairy and juice brands including Dairy Farmers, Big M, Pura, Daily Juice and Berri under the proposed deal, which still needs FIRB approval.

The fast-growing Mengniu is listed in Hong Kong and the Chinese government-owned entity Cofco owns about 16.2 per cent of the company. Lion is owned by Japan's Kirin Holdings.

The proposed deal would also extend the reach of Chinese business operations into Australian food and agriculture. The Mengniu-Lion deal was announced in November, shortly after Mengniu, one of the world's biggest dairy companies, received conditional approval to buy Australian infant formula company Bellamy's Organic in a $1.5 billion deal, which has since been finalised.

ACCC commissioner and merger committee chairman Stephen Ridgeway said very little opposition to the Mengniu-Lion deal emerged from inside the industry during the regulator's review.

"The farmers and the other market participants and the manufacturers were pretty clear that they didn't think it would be a problem," he told The Age and The Sydney Morning Herald.

A key consideration for the ACCC was its potential impact on competition for the purchase of raw milk from dairy farmers in Gippsland, Victoria.

Lion owns dairy processing facilities at Morwell in Gippsland and Chelsea in Melbourne. Mengniu, through a subsidiary, has an indirect interest in the dairy processor Burra Foods, which has a facility at Korumburra in South Gippsland.

The ACCC found that while Burra and Lion competed for raw milk, they were not close competitors and farmers were unlikely to switch between the two processors.

Mr Ridgeway said a merged Mengniu-Lion entity would "be constrained" by the two largest dairy processors operating in Gippsland, Saputo and Fonterra.

"Even combined, Burra and Lion Dairy & Drinks will be acquiring less than 25 per cent of the raw milk available in Gippsland," he said.

A Mengniu spokesman said: "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. The transaction remains scheduled to complete in the first half of 2020."

A Lion spokeswoman said the sale was subject to ACCC and FIRB approvals, as well as other standard closing conditions.

"We note that the ACCC has today announced it will not oppose the proposed acquisition. We welcome this outcome, which is an important step forward, and look forward to moving through the remaining regulatory approvals and completing the sale," she said.

Rabobank senior analyst Michael Harvey said buying the Lion assets gave Mengniu a "good footprint in Australia. And I think there's also an attraction about looking to build an export business into Asian markets."