China Mengniu Dairy has offered A$1.5 billion (US$1 billion) to take over Australian infant milk formula maker Bellamy, reflecting the dairy products giant's goal to expand aggressively abroad.
The Inner Mongolia company said on Monday that it would buy Bellamy at A$13.25 a share, which represents a 59 per cent premium to the Australian company's closing price of A$8.32 on Friday.
The deal, accepted by Bellamy's board, is subject to a review by Australia's Foreign Investment Review Board, Mengniu said in a filing to the Hong Kong stock exchange.
"Infant milk formula is one of the largest and fastest-growing segments among all dairy segments in China driven by increasing disposable income and growing child spending," Mengniu said in a statement. "Future growth is underpinned by continuous premiumisation and increasing penetration into lower-tier cities which have larger households and higher birth rates."
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The proposed overseas acquisition by Mengniu comes after a period when outbound investment by mainland firms stalled. Beginning in 2017, Chinese regulators took a harsh stance about overseas buying, putting half a dozen highly leveraged asset buyers - including Anbang Group, CEFC, Dalian Wanda and HNA Group - under heightened scrutiny.
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The ongoing US-China trade war also deterred mainland companies from making acquisitions abroad because of more scrutiny by the foreign investment authorities.
"Consumer spending will become a major growth driver for China's economy as the trade war is expected to have a negative impact," said Gao Shen, a Shanghai-based independent analyst specialising in manufacturing and consumer sectors. "Overseas acquisitions by mainland consumer products companies will continue to be active."
It also comes a decade after a tragic tainted infant formula scandal in China, which led many parents to prefer foreign brands.
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China's economy expanded 6.2 per cent in the second quarter - its weakest growth since records began in 1992.
Beijing has been rolling out incentives, such as granting subsidies to bolster consumption, since the beginning of this year as a way of combating the economic slowdown.
In 2016, Beijing ended the decades-long one-child policy to encourage people to have a second child. Economists forecast that the second-child policy would lead to an additional 3 million newborn babies in China every year.
Andrew Cohen, Bellamy's chief executive, said Mengniu would be an ideal partner and offered a strong platform for distribution and success in China, according to the Financial Times.
Mengniu and its rival Inner Mongolia Yili Industrial Group each have about 20 per cent share in the Chinese dairy products market.
Mengniu recently partnered with US beverage giant Coca-Cola to sign a record US$3 billion sponsorship deal with the organisers of the Olympic Games.
In June, Mengniu said it would sell its 51 per cent stake in dairy products unit Shijiazhuang Junlebao Dairy for 4.01 billion yuan ($567 million), a deal that helped it to gain 3.43 billion yuan before taxation.
In Hong Kong, Mengniu shares were trading down 2.9 per cent to HK$30 in the early afternoon session.
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