Mengniu's M&A spree hints at foray into new business

The series of mergers and acquisitions made by Inner-Mongolia-based China Mengniu Dairy in 2013 and its latest announcement about entering a joint venture in China with the US-based WhiteWave Foods are being seen as part of its efforts to expand into the beverage business, the Beijing-based China Times (not our sister paper) reports.

The Jan. 6 announcement was made jointly by Mengniu — China's biggest milk seller by volume — and its subsidiary Yashili International Holdings, with the dairy company saying it plans to expand into nutritious products through participation in the deal.

WhiteWave is a leading consumer packaged food and beverage company in the US, which posted sales of US$2.1 billion from its soy milk products alone in its home market and in Europe in 2012, the paper said.

Mengniu will own a 51% stake, while WhiteWave will control the remaining 49% in the recently announced venture. The deal comes after Mengniu bought several companies in 2013, including Yashili and Modern Farming, and entered a partnership with French food group Danone and Denmark's Arla Foods.

Mengniu and Danone plan to produce and sell yogurt drinks in China, with the Chinese company holding an 80% stake in the joint venture, the paper said.

A Mengniu official stated that the company successfully established a market for high-end dairy products through its Milk Deluxe brand, but more innovation is required as its competitors have moved into this market segment.

Industry insiders, meanwhile, said that Mengniu's latest move was likely to target Chinese beverage giant Hangzhou Wahaha Group, which made over 20 billion yuan (US$3.3 billion), or a third of its annual sales in 2013 from its nutritious drink products, which have higher margins than milk.

The paper also reported on the challenges involved in the surging wholesale price of milk in China, which rose by 16.5% between April and October last year due to the tight supply in the market.

However, one expert told the paper that the dairy and beverage businesses are quite different in terms of distribution and management, and that Mengniu may face impediments if it plans on entering the beverage market.

Dairy sector expert Chen Yu said it is necessary for a dairy company to expand and strengthen its operations through mergers and acquisitions, and that Mengniu is likely to continue making similar deals this year. Chen added that Mengniu should prepare for the upcoming challenge of integrating these recently acquired companies, since they have different work cultures.c