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Sanyuan halts trading on talk of Sanlu takeover
Last Updated(Beijing Time):2008-09-27 11:17

Beijing Sanyuan Foods Co, whose dairy products have been cleared of melamine contamination by the government, suspended trading on the Shanghai stock market amid an acquisition announcement.

The Beijing-based company said in its filing to the Shanghai Stock Exchange yesterday that it is studying a possible takeover after receiving a notice from a higher authority. It didn't give further details.

Sanyuan has been reported to buy Sanlu Group Co, the company that has been in the spotlight of the melamine-tainted milk scandal, according to the China Securities Journal yesterday, citing unidentified industry officials.

The newspaper said Sanlu may lose as much as 700 million yuan (US$102 million) in the food scandal with more than 10,000 tons of contaminated infant formula recalled and compensation to parents of sick babies.

"There is possibility that Sanyuan may acquire the production line and factory of Sanlu to make its own products," said Wang Peng, a dairy analyst from Shenyin Wanguo Securities Co Ltd.

"In the short term, it would be an opportunity for Sanyuan to boost production and expand to other markets."

Wang Shuang, an analyst at TX Investment Consulting Co Ltd also said the acquisition won't hurt Sanyuan's brand reputation as its manufacturing process was given the all-clear during the government inspections.

China's dairy association earlier called for an industry-wide consolidation after it was greatly hit when melamine was found in products made by major market players including Yili, Mengniu and Bright Dairy.

Contaminated milk, sold by 22 dairy producers, killed at least four babies and sickened 53,000 in China.

Shares of Sanyuan had jumped 77 percent in the past six days, giving it a market value of 3.5 billion yuan.

New Zealand's Fonterra Cooperative Group, the world's biggest dairy exporter, said this week it wrote down the value of its 43-percent stake in Sanlu by 69 percent to NZ$62 million (US$43 million), Bloomberg News reported.

Sanyuan sells 70 percent of its products in its home market in Beijing, with the remaining sales coming from cities in northern, northeastern and southern China.

Source:Shanghai Daily 
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