Date
21 November 2017
New Zealand's national flag flies at Fonterra's head office  in Auckland. The company may be paying a high price to boost its presence in China's branded infant formula market, analysts say. Photo: Bloomberg
New Zealand's national flag flies at Fonterra's head office in Auckland. The company may be paying a high price to boost its presence in China's branded infant formula market, analysts say. Photo: Bloomberg

Fonterra buys stake in China’s Beingmate for US$553 mln

New Zealand’s Fonterra Co-operative Group Ltd. paid US$553 million for an 18.8 percent stake in China’s Beingmate Baby and Child Food Co. Ltd. (002570.CN).

Fonterra said it paid 18 yuan (US$2.8) per share for 192 million shares in the Chinese baby food and infant formula maker, Reuters reported.

China is a crucial market for Fonterra. It imports about a quarter of New Zealand’s total dairy exports to feed growing demand for milk products, particularly baby formula, from the country’s booming middle class.

“We are extremely satisfied and confident that the partnership can and should proceed on the basis of the 18.8 percent stake,” Fonterra chief financial officer Lukas Paravicini said in a statement on Monday.

In August, Fonterra said it was seeking a 20 percent stake in the company.

Analysts said the smaller stake may have been due to a fall in the New Zealand dollar since the offer was announced.

The price per share was in line with initial plans, but the total price tag of around NZ$752 million was 22 percent higher than initially forecast, reflecting the weaker currency.

The price per share represented a 1.7 percent premium to Beingmate’s trading price of 17.68 yuan per share on Monday, and was at the top end of its one-year average around 12-18 yuan.

Fonterra was paying a high price to raise its presence in China’s branded infant formula market, valued at around US$18 billion in 2014 by Euromonitor, given that many multinationals are investing heavily and demand expectations are easing, said Forsyth Barr analyst James Bascand.

The New Zealand company, the world’s largest dairy exporter by volume, has already lowered its forecast for Chinese dairy demand, anticipating consumption to increase 4 percent a year through 2020, from an earlier forecast of 7 percent.

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CG

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