Chinese company scoops Masters

Lion Dairy & Drinks (LDD), which reintroduced the 50-year-old Masters brand in WA three years ago and produces Masters white milks, iced coffee and flavoured milk drinks as well as Dare and Farmers Union iced coffee and Pura cream, at Bentley, is being sold to China Mengniu Dairy Company Ltd.

With a $43 million three-year upgrade, including a new filling line to increase capacity, completed last year, the Bentley plant is one of 11 LDD and two joint venture processing plants in Australia to change ownership as part of the $600m cash deal expected to be completed next year.

Twenty eight WA dairy farms supply the Bentley plant, an LDD spokesperson confirmed on Monday after the sale of LDD, the Lion Group's remaining dairy and fruit drink interests after the recently finalised $280m sale of its specialty cheeses division to Canadian dairy giant Saputo, was announced.

Most of those dairy farmers have three-year supply contracts with LDD which still have about a year to run.

The balance of those contracts and of less popular five-year supply contracts with local dairy farmers are expected to transfer across to Mengniu Dairy as LDD assets purchased in the deal.

"There is no immediate change for our dairy farmers, Lion Dairy & Drinks employees, customers or business partners such as Dairy Australia as we move through this (sale) process and it is very much 'business as usual' for us," the spokesperson said.

"Ensuring continuity of supply, quality and service to our customers and consumers are priorities for us as we finalise the sale," they said.

In recent years LDD has paid dairy farmers supplying its Bentley plant more than WA's other two milk processors, Brownes Dairy owned by Shanghai Ground Food Tech and Harvey Fresh owned by Lactalis Australia after a name change from Parmalat, generally paid their suppliers.

This was confirmed last week at Western Dairy's Spring Forum where Dairy Farm Monitor Program statistics showed an average price paid by LDD to program participants last financial year was 52.2 cents per litre, several cents better than average prices paid by Brownes or Harvey Fresh.

The Bentley plant also processes Coles' own-brand milks under the largest volume milk processing contract in WA, which is due to expire next September unless a five-year option is taken up.

In 2015 Coles used a change of ownership of its then milk processor Harvey Fresh to switch its own brands contract across to LDD at a lower price and in the Eastern States, as part of the wind back of $1-a-litre milk, it has said it is going to start bypassing processors in negotiating long-term supply contracts direct with dairy farmers.

There is a chance Inner Mongolian-based Mengniu, which last week gained approval to also buy Tasmanian infant formula maker Bellamy's Australia and which already owns 79 per cent of Victorian dairy company Burra Foods, could find its first move in WA next year to increase its market share.

Lion Group, a wholly-owned subsidiary of Japanese international brewer, pharmaceuticals and biochemicals company Kirin Holdings Company Ltd, said in October last year it was looking to sell LDD to concentrate on its brewing interests in Australia.

Apart from LDD's brands and assets in Australia and its mainly yoghurt interests in South East Asia and China, the deal gives Mengniu Dairy LDD's share of joint ventures with plant milk maker Vitasoy Australia Products and Capitol Chilled Foods Australia which distributes milk and dairy products through the Australian Capital Territory and southern New South Wales.

Mengniu Dairy also takes over LDD's licensing agreement for the Yoplait yoghurt and dairy desserts brand.

The sale is subject to Australian Competition and Consumer Commission (ACCC) and Foreign Investment Review Board (FIRB) approvals.

In a statement on Monday to the Hong Kong stock exchange, where Mengniu Dairy is listed, it said it has a written "no objections notification" from Federal Treasurer Josh Frydenberg's department for the sale and the ACCC has said no public review will be held and it does not intend to oppose the sale.

Mengniu Dairy said once the sale was complete LDD will become an "indirect wholly-owned subsidiary" and its financial results will be consolidated into financial statements of the Mengniu Dairy group.

Its Hong Kong statement said LDD had earned pre-tax profits of $65.5m in the year to December 31, 2018 and $69m in 2017.

LDD's net assets were valued as at August 30 at $596m, Mengniu Dairy said.

It indicated plans to grow its business as a multi-brand and cross-category vertically integrated major entity - Mengniu has been on Rabobank's "Global Dairy Top 10" list for the past three years - into the Asia Pacific region was the reason behind both the LDD and Bellamy's purchases.

LDD's "portfolio of iconic dairy brands with number one market position in milk-based beverages, yoghurt, chilled juice and plant-based beverages in Australia", its access to a "significant volume of highly regarded Australian milk pool" and its extensive cold chain distribution network were attractions, it said.

So to was the possibility of increasing the volume of UHT (ultra-heat treatment) milk products using LDD facilities, Mengniu Dairy said.

"Together with the infant milk formula products offered by Bellamy's, upon completion of its acquisition (of LDD), this extensive business layout would equip (Mengniu Dairy) with a stronger foundation to excel in the Asia Pacific markets," it said.

Mengniu Dairy chief executive officer Jeffrey Minfang Lu said the company would leverage its vast distribution networks in Asia and "potentially make strategic investments in additional production capacity to drive product innovation and access new markets".

"This acquisition brings together the best of the east and west, harnessing Mengniu Dairy's networks in existing markets and LDD's leading brands and production capability," Mr Lu said.

"I truly believe our proposed acquisition will bring tremendous opportunity for the entire Australian dairy sector, opening up a channel to our home market in a very significant way."