Mengniu Terminates Acquisition of the Second Largest Dairy Company in Australia

On August 25^th, China Mengniu Dairy Company Limited ("Mengniu") revealed in an announcement that it had terminated acquisition of the second largest dairy company in Australia, LION-DAIRY & DRINKS PTY LTD ("LDD"), in a written agreement. According to Mengniu's announcement, the reason of the termination is "one of the conditions was not achieved by the preconditioned expiration date". ^[1] 

Kirin Holdings Company Limited of Japan ("Kirin"), parent company of LDD, also released an announcement on Aug 25th, which claimed that the approval of Foreign Investment Review Board of Australia ("FIRB") was necessary to complete the transfer agreement. However, it hadn't been approved yet and wasn’t likely to be approved in the future, so both parties agreed to terminate the acquisition. ^[2] 

Context

In November 2019, Mengniu announced the proposed acquisition of LDD. In February 2020, Australian Competition and Consumer Commission ("ACCC") declared that after careful evaluation of potential effect on competition, ACCC would not oppose the acquisition proposal. FIRB also started relevant investigation in Feb, 2020. In June 2020, Australia shook up the foreign investment laws, which empowered the Treasurer of Australia to turn down resolutions of FIRB. Although FIRB advised the approval of Mengniu's acquisition proposal, Treasurer Josh Frydenberg declined the sale stating that it would be "contrary to national interest" ^[3]. This is the first counteraction from the Australian government after China initiated its anti-dumping probe into Australian Wine.

Mengniu Acquisition Blueprint

LION-DAIRY & DRINKS PTY LTD is a major dairy company in Australia. It specializes in dairy food and juice and owns many top ranking dairy brands in Australia, covering milk beverage, yogurt, low temperature juice and plant-based drinks. If Mengniu had acquired LDD, it would have acquired additional brands, such as Dairy Farmers, Big M and Pura and with them extended its business into Australia. In 2016, Mengniu indirectly acquired Australian dairy company Burra Foods and in 2019, Mengniu acquired Australian infant formula company Bellamy's. If Mengniu had acquired LDD this time, it would have been able to combine the products of all three companies to meet the demands of the Chinese and Southeast Asian markets. ^[4] Additionally, Mengniu could have obtained stable raw milk supply to support the Chinese market.

Impact of Acquisition Termination

Mengniu stated in an announcement that the termination of acquisition would not cause material adverse effect to its operation, business and financial condition. However, this event shows the instability of investing in Australian dairy which indicates a new risk where non-commercial factors could impede future investments.