CHINA – China Mengniu Dairy, through its subsidiary Inner Mongolia, has agreed to increase its stake in Chinese cheese manufacturer Shanghai Milkground for a total value of ¥3 billion ($459 million).

The transaction which includes the purchase of more than 100 million shares, will see Inner Mongolia increase its stake in the Chinese dairy company to 23.8% from the 5% it acquired in March.

Upon completion of the deal, Inner Mongolia will become the controlling shareholder of Shanghai Milkground, a position which was previously held by Ms Chai.

Shanghai Milkground Food Tech Company is involved in the manufacturing and distribution of dairy products such as cheese, liquid milk, butter, cream, condensed milk and cheese slides.

The company whose major focus is on Cheese production operates five manufacturing facilities across China.

According to the official filing, the company’s cheese business has seen rapid expansion in recent years and has become a leading enterprise in the cheese industry in China.

Mengniu’s subsidiary Inner Mongolia says the investment is in line with its development strategies adding that Shanghai’s long-term development potential and future prospects were a factor that influenced it to invest in the dairy company

According to a report by FoodBev, the share subscription agreement, which is subject to approval, will be funded by internal resources of the group and bank financing.

The move to acquire a local dairy company follows an earlier attempt by China Mengniu to acquire Lion Dairy & Drinks, a leading Australian dairy company which was previously owned by Kirin Holding- a Japanese beverage company.

The deal which had been confirmed by the Japanese company was later called off after Australia’s Treasurer Josh Frydenberg decided the sale was “contrary to the national interest”.

Beijing had at the time hit several Australian exporters with trade sanctions, while a number of federal MPs and senators had campaigned against the Lion deal, warning that it could undermine local milk supplies.

After shelving its plan, the acquisition of a controlling stake in the local cheese company is seen as a soft landing for the Chinese dairy company which is has an appetite for growth.

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