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Takeover plans could hit Pokeno plant

ANDREA FOX
Last updated 14:49 28/06/2013

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Dairy

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Plans for a $230 million infant formula plant at Pokeno in north Waikato will take a new twist if Chinese dairy company Mengniu takes over Chinese company Yashili, which has consent for the project.

The Overseas Investment Office (OIO) has confirmed that Mengniu, a state-owned enterprise and China's biggest dairy company, will have to apply for its own consent for the plant if the NZ$2 billion takeover deal is completed.

Mengniu said in a statement this week that privately owned Yashili's controlling shareholders had accepted its offer.

Yashili, which is one of China's big three infant formula processors, was this year cleared by the OIO to buy the Pokeno land for the plant, which it said would create about 120 jobs.

An OIO spokesman said if the takeover proceeds, Mengniu would need a new consent because the overseas investment legislation applies to acquisitions by overseas parties of significant New Zealand business assets, even if the purchase takes place overseas.

The requirement for consent was triggered when an overseas party acquired a stake of 25 per cent or more or a controlling interest in the target company.

Mengniu's statement had said the Pokeno plant proposal would not be affected by the takeover.

The OIO noted the Mengniu takeover offer is not yet unconditional.

Yashili is in the process of applying for land use and emissions consent to local authorities.

Construction is due to start this year with commissioning planned for the second half of next year.

The Mengniu-Yashili deal marks the latest step in China's milk industry to consolidate the market after tainted-milk scandals.

Meanwhile, expat Kiwi David Mahon, who has been a businessman and consultant in Beijing for more than 20 years, wrote in his newsletter China Watch this week on the "drawbacks of state capitalism" in China.

He said China's state-owned enterprises continued to accrue "unprecedented economic power".

"Two of the greatest threats to the stability of the Chinese economy remain the increase in state and relative decrease in private ownership, and the reluctance of banks to lend to the private sector."

Noting Mengniu's takeover bid for Yashili "one of the country's most strategic privately owned infant formula companies", Mahon said Mengniu was controlled by its largest shareholder COFCO, China's state-owned agriculture and food giant, and already accounted for about 30 per cent of the wider domestic dairy market.

"The Chinese infant formula market is worth approximately US$12.5b (NZ$126b) annually and is likely to double in value by 2017.

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"The government claims that it is primarily interested in food safety, and that state ownership in the food sector will give it the means to enforce standards.

"This is true to a degree but the core motives of most SOEs are to expand their power and increase profits.

"If it appears that profits might be hurt through compliance with food safety standards, the safety standards will suffer.

"Ultimately, widespread state ownership in any sector results in multiple conflicts of interest.

"Food safety and environmental compliance can only be weakened when the state is both commercial leader and regulator of a sector," Mahon said.

- Waikato Times

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