Dairy pair expected to reveal milk deal

Trading in the shares of two Hong Kong-listed mainland dairy firms was suspended yesterday, triggering market speculation about a possible consolidation in the fragmented formula milk market in China.

Trading in China Mengniu Dairy, one of the largest milk product manufacturers in mainland China, was suspended at around noon, and within minutes of the announcement on the local stock exchange, trading in Yashili International, one of the top 10 milk formula brands in the nation, was also suspended.

Mengniu, which was hurt by a series of scandals over tainted milk over the past three years, was likely to be bidding to restore its brand image and to be exploring the milk formula market, a food and beverage analyst said.

Yashili, which mainly produces milk products for pregnant women, has approximately 4 per cent of the mainland milk formula market, according to Euromonitor, the global market research company. The market leader, Mead Johnson, has a share of just 13 per cent, followed by Beingmate (10 per cent), Dumex (8 per cent), Yili (7 per cent), and Wyeth (7 per cent).

Mengniu has an even smaller interest in the production of milk formula, through a joint venture with the Danish company Arla Foods, which owns 5.9 per cent of Mengniu.

Market speculation yesterday was that either Mengniu will acquire a stake in Yashili, or the two would form a strategic alliance.