Lion back on hunt as dairy sale sours

The proposed sale quickly became embroiled in politics and international trade.

Some of the biggest milk brands in Australia are now back on the market, such as Pura and Dairy Farmers and popular flavoured milks Big M and Dare.

Beverages, brewing and dairy group Lion is looking for a new buyer for its dairy and drinks business, after Treasurer Josh Frydenberg took a dim view on the proposed $600m sale to the partly state-owned Chinese company China Mengniu Dairy Company that has now scuppered the deal.

It means some of the biggest milk brands in Australia are now back on the market, such as Pura and Dairy Farmers and popular flavoured milks Big M and Dare.

Last November, Lion announced the sale to Mengniu as a key step in untangling itself from years of underperformance in the dairy sector that triggered billions of dollars in writedowns and impairments, with the Chinese dairy giant happy to take the unit off its hands.

It would have given China Inc a commanding position in Australia’s $13bn dairy industry and a greatly strengthened platform of consumer brands and bulk milk supply to feed its global trade ambitions.

Access to Australia’s milk supply and strong dairy brands was touted by Mengniu at the time as fitting in well with China Premier Xi Jinping’s “One Belt, One Road” masterplan that aims to build new trade routes from China to the rest of the world.

The sale quickly became embroiled in politics and international trade as Mengniu also snapped up Australian infant milk formula group Bellamy’s, and tensions between Canberra and Beijing soured over a number of disputes.

Mengniu is part of the wide China Inc web of companies through its second biggest shareholder, the Chinese state-owned COFCO agricultural conglomerate that has a stake of just under 20 per cent.

Approval for the Lion Dairy & Drinks sale was needed from the Foreign Investment Review Board, but after months of dragging on there was no answer and finally Lion and Mengniu have walked away from the deal.

“Given this approval is unlikely to be forthcoming at this time, Lion and Mengniu Dairy have mutually agreed to cease the current sale process,” Lion said in a statement on Tuesday.

“We are disappointed with this outcome and will now consider pathways forward in relation to the Lion Dairy & Drinks business.”

In a brief statement sent to The Australian, Mr Frydenberg said he had previously advised both parties the sale would not be in the interest of the country.

“I have been advised that Lion Dairy & Drinks Pty Ltd and China Mengniu Dairy Company have mutually agreed to not proceed with the sale process,” he said.

“This follows the communication of my preliminary view to Mengniu Dairy that the proposed acquisition would be contrary to the national interest.”

In a statement to the Hong Kong stockmarket, Mengniu alerted its own investors the sale was over. “As one of the conditions stated in the announcement has not been fulfilled on the conditions precedent end date, the parties have agreed in writing on August 24, 2020, to terminate the share sale and purchase agreement.

“The termination … has no material adverse impact on the current operation, business or financial position of the group.”