Diplomatic tension set to bar China-Australia dairy purchase deal

AUSTRALIA – The government of Australia is on the verge of blocking China Mengniu Dairy’s purchase of Australian beverage unit Lion Dairy & Drinks from Japan’s Kirin Holdings for AUD 600 million (US$429.17 million), the Australian Financial Review has reported, citing a source who blamed “diplomatic issues”.

The deal was to include all white milk, milk-based beverages, yoghurt, juice and water ice brands and assets as well as Lion Dairy & Drinks’ International business, and Dairy & Drinks’ share of the joint ventures Vitasoy Australia Products and Capitol Chilled Foods Australia.

Josh Frydenberg, Australia’s treasurer, has told state-owned China Mengniu his preliminary view is that the takeover of the Lion Dairy brands owned by Japan’s Kirin Holdings Co should not proceed, according to two sources with knowledge of the proposed transaction.

Without identifying its sources, the AFR said that Treasurer Josh Frydenberg has gone against the advice of the Foreign Investment Review Board (FIRB) and Treasury, which were in favour of approving the purchase.

Mr Frydenberg has written to the Chinese company to inform it of his decision and to give it an opportunity to provide remedies or reasons why he should change his mind, the sources said.

That would mark the first government veto since Australia in July announced its biggest shake-up of foreign investment law in almost half a century, indicates Reuters.

This reportedly includes last-resort powers to the treasurer to vary or impose conditions on a deal, or force a divestment after it has been approved by FIRB.

The news of a possible veto of the China Mengniu purchase comes against a backdrop of deteriorating diplomatic relations between the two countries, after Canberra called for an independent inquiry into the origins of Covid-19.

According to reports by Foodbev, China – Australia’s largest trading partner has recently imposed dumping tariffs on Australian barley and halted beef imports from four Australian firms.

Earlier this week, Beijing announced that it had launched an anti-dumping probe into Australian wine imports, a move that caused shares of Treasury Wine Estates to fall by as much as 20%.

Chinese investment to Australia more than halved in 2019 to US$2.4 billion, and the number of deals is likely to keep falling in 2020, according to bankers cited by Reuters. The diplomatic tension and Covid-19 are anticipated to be behind the fall.

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