Fonterra's Sanlu investment looms large

Fonterra's long awaited plan to invest in the Chinese dairy company Shijiazhuang Sanlu Group is close to completion, according to local reports.

The China Business News quotes industry expert Wang Dingmian as estimating the purchase price at more than 300 million yuan ($54.5 million) - the biggest acquisition by a foreign investor in China's dairy sector.

Fonterra and Sanlu started talks in 2002. In April last year Sanlu officials said negotiations were in the final stages and an announcement would be made once the deal was signed.

Fonterra has signed a letter of intent with the Chinese dairy firm and will sign to buy around 40 per cent of the Chinese enterprise, China Business News reported.

Sanlu is based in the northern Chinese province of Hebei, which surrounds the capital Beijing.

Sanlu has its headquarters in Shijiazhuang, the provincial capital, and started out as a large-scale state enterprise raising dairy cows and processing, packaging and researching milk, particularly milk powders.

It produces about 60 varieties of milk powder, including baby formulas and nutritional supplements, and has expanded into flavoured drinks.

Fonterra has also previously been reported to be considering moving its Chinese subsidiary, Anjia, from Guangzhou to Shanghai and to start using a unified Chinese brand for all of its dairy products.

A Fonterra spokesman in Auckland declined to comment on the deal.

Fonterra chief executive Andrew Ferrier - who took his entire board of directors to China earlier this month - told the China Daily newspaper two weeks ago that negotiations over his company's joint venture there were nearing completion.

"Optimistically, the venture will be completed in the coming few months," he said.

China facts

* Fonterra's fourth largest market by volume and fifth largest by value.

* Sales of more than 100,000 tonnes of product (mostly milk powder) worth more than $300 million.

* Dairy consumption growing at more than 10 per cent a year.

* Fonterra has offices in Hong Kong, Beijing, Shanghai and Guangzhou.

* Fonterra is finalising a joint venture with a top Chinese dairy company.

- NZPA