Heilongjiang Feihe Dairy Co Ltd, a subsidiary of Feihe International Inc , will acquire a 70 percent stake in Shaanxi Guanshan Dairy Industry Co Ltd for about 300 million yuan ($49 million), extending its portfolio into the goat milk powder business as it targets high-end consumers, a company executive said.
The deal, which is being finalized, is seen as an early step in the government's drive to rationalize the sector. Specific policies for the industry are expected to be released by the end of this month.
Industry analyst Song Liang said the deal, involving the goat milk industry, could help Feihe, which is pursuing more consumers in first- and second-tier cities.
SGDI will offer Feihe a way to grab share in a market with huge growth potential.
Leng Youbin, chairman of Feihe Dairy, said on Wednesday that the goat milk powder market, valued at 3 billion yuan annually, is expected to grow into an industry worth 10 to 20 billion yuan within 10 years.
The market for cows' milk is worth nearly 60 billion yuan.
The move will allow Feihe to expand its product lines and capture more high-end customers.
Prices for goat milk powder are often twice those of cow milk powder.
Goat milk is also a good substitute for those who are allergic to cow's milk, Leng added.
Feihe will retain the Guanshan brand. It's expected to replicate its cow milk production system and transform SGDI's goat farm operations from the household level into large-scale production.
SGDI, the largest goat milk powder brand in Shaanxi, had revenue of 1.38 billion yuan in 2013. It produced 9,000 metric tons of milk powder of that year, almost one-third its the province's total.
With about 90,000 retail outlets nationwide, SGDI's goat milk powder products are to be introduced to more customers, Leng said.
The chairman said the deal will support Feihe's goal of achieving 20 to 30 percent annual growth over the next five years. Last year, revenue increased 30 percent to more than 3 billion yuan.
He said the goat milk powder business is expected to increase at least 100 percent year-on-year.
It's not the first acquisition for Feihe this year. On Jan 14, the company said it would acquire Jilin Alfbeta Dairy Co Ltd, which distributes formula for infants and children.
Unique locations in Northeast China and advantages in dairy sources and distribution channels were said to be incentives for Feihe to make its latest acquisition.
Song said the nation's plan for dairy industry consolidation, to be released by the Mini stry of Industry and Information Technology, will seek to raise industrial concentration to 65 percent among the top 10 domestic brands by the end of 2015.
The plan will also aim to cut the number of formula milk dairy enterprises to 87 from 127 at present.
By the end of 2018, the plan aims to develop three to five large dairy enterprises, with domestic brand concentration reaching 80 percent among the remaining 50 enterprises.
The ministry is likely to announce tax and financing policies for the dairy industry.
