China’s Yili dairy company leads bidders for Murray Goulburn: sources

China dairy powerhouse Yili has made a knockout bid in the first round of the contest for Murray Goulburn, say sources.

Long-time Murray Goulburn suppliers Jim Munro with his son Jono on their property at Camperdown in Western Victoria. Pic: Aaron Francis

Chinese dairy powerhouse Yili has made a knockout bid for Murray Goulburn, according to sources, in the first round of the contest for Australia’s largest dairy processor.

Investment bank Deutsche called for first round bids for the company by Friday and a raft of the country’s largest dairy groups are believed to have lobbed offers, as well as Chinese suitors.

Yili, which has the full name Mongolia Yili Industry Group Company, is a privately-owned Chinese dairy company that processes and manufacturers milk products such as ice cream and powdered milk.

It has hired Bank of America Merrill Lynch as its adviser.

Speculation is mounting that Yili has made a generous offer for Murray Goulburn (MGC), which some estimate could be worth about $1.20 per unit — almost double the price it was trading at before it was put up for sale.

Competing for Murray Goulburn is Inner Mongolia Fuyuan Farming, a subsidiary of Yili’s rival in China Mengniu Dairy.

Fuyuan Farming is a major shareholder of the domestic dairy processor and supplier Burra Foods.

It is now understood that Denmark’s Arla Foods’ interest in Murray Goulburn is through the equity interests it holds in Mengniu’s companies.

As previously reported by The Australian’s DataRoom, A2, advised by Goldman Sachs, is eager to buy assets in the Murray Goulburn stable, including its milk sachet business. It is also eager to have Murray Goulburn’s farmers producing milk with its A2 protein.

Among the other bidders, Saputo is working with Moelis, Parmalat is working with Morgan Stanley, Bega Cheese with Kidder Williams and Fonterra with Rothschild.

However, Saputo and Bega Cheese may face competition issues from the Australian Competition and Consumer Commissions in efforts to gain control of Murray Goulburn, according to market analysts.

Murray Goulburn’s shareholder China Resources also has an interest.

While some question whether any acquisition by a Chinese party would secure Foreign Investment Review Board approval, one argument is that any bid would require 90 per cent approval from Murray Goulburn’s farmers under its co-operative structure, and the Coalition government is unlikely to take a contrary view to what are largely its voters.

Murray Goulburn hired investment bank Deutsche to embark on a strategic review in recent months after farmers started deserting the company to other suppliers.

The company is now for sale as it faces a class action after suffering at least one major profit downgrade and cuts to its milk price.