Chinese takeover of Australian milk processor blocked on national interest grounds

Lion Dairy & Drinks is Australia’s second-largest milk processor but the proposed sale did not include any farmland, an area of concern during previously blocked Chinese takeover bids.

Treasurer of Australia Josh Frydenberg has blocked a Chinese takeover of Lion’s dairy and drinks subsidiary on national interest grounds, in the latest sign of tit-for-tat trade interventions between Australia and China.

Kirin, the Japanese parent company of Australia-New Zealand beverage company Lion, announced to shareholders this week that a takeover agreement between it and China Mengniu Dairy had been terminated, as the deal had not received Foreign Investment Review Board approval.

China Mengniu Dairy agreed a deal to acquire Lion Dairy & Drinks in 2019 for approximately A$600 million ($432 million; €365 million), with Kirin retaining ownership of its Lion Beer subsidiary.

Lion Dairy & Drinks is Australia’s second-largest milk processor and owns well-known brands including Dairy Farmers and Pura. The sale did not include any agricultural land, a previous sticking point during national interest tests.

In its statement this week, Kirin said the deal had been approved by the Australian Competition and Consumer Commission and had been awaiting FIRB approval.

“Given this approval has not been secured to date and is unlikely to be forthcoming at this time, regrettably, the parties have agreed to terminate the agreement,” it said.

Frydenberg confirmed that he had blocked the bid via a statement: “I have been advised that Lion Dairy & Drinks and China Mengniu Dairy have mutually agreed to not proceed with the sale process.

“This follows the communication of my preliminary view to Mengniu Dairy that the proposed acquisition would be contrary to the national interest.”

China Mengniu is listed in Hong Kong and is part-owned by the Chinese government. Last year it completed an acquisition of Australian infant formula producer Bellamy’s for A$1.5 billion in a deal that was approved by the Australian government.

The political landscape has since shifted, as trade tensions between Australia and China have grown following Australia’s public support for an independent investigation into the origins of the coronavirus pandemic.

Although never officially drawing a link to that, China has since imposed tariffs of up to 80 percent on Australian barley, blacklisted four major meat processing facilities that export to China and launched an anti-dumping investigation into Australian wine.

Chinese ambassador to Australia Chen Jingye described Australia’s push for an inquiry into covid-19 as “dangerous” in an April interview with the Australian Financial Review and suggested that consumer exports to China could be vulnerable to anti-Australian sentiment.

Trade minister Simon Birmingham subsequently told Sky News in May: “Just as we won’t on trade issues engage in tit-for-tat-type retaliatory measures, we will work sensibly through the issues that are before us.”

The last time a major agricultural deal was blocked on national interest grounds was in 2015 and 2016, when then-treasurer Scott Morrison twice prevented Chinese investors from acquiring cattle station operator S Kidman & Co.

S Kidman was eventually acquired by Gina Rinehart’s Hancock Prospecting alongside junior consortium partner Shanghai CRED Real Estate Stock Co.