China’s $600m Lion dairy takeover rejected by Federal Government in payback

The Treasurer Josh Frydenberg has made a popular move to protect Australia’s national interest and reject the Chinese purchase of Lion’s drinks.

Is this an opportunity for an Australian owned company to stand up and buy the Lion drinks business?

Despite the Foreign Investment Review Board (FIRB) being comfortable with Mengniu Dairy’s latest deal has been rejected in light of “diplomatic issues” currently at play where China is attacking Australian exports.

The $600 million Lion dairy business sale seemed like a done deal but with political and trade relations straining over Chinese threats to impose more export penalties on Australian agricultural and food products with the latest the wine industry exports.

Mengniu is an Inner Mongolian-based, Hong Kong-listed company that already owns a bunch of Australian businesses including Bellamy’s Organic dairy formula business, that is paid $1.5 billion for, and is indirectly a major stakeholder in milk processor Burra Foods.

In February the Australian Competition and Consumer Commission gave its approval of the purchase.

Japanese owned Lion owns two milk plants at Chelsea and Morwell in Gippsland, while Burra Foods has a milk processing plant at Korumburra.

This was one of many recently Chinese purchases including Van Diemen’s Land Company was Australia’s oldest and largest dairy farming company when it was acquired by the Chinese investment company Moon Lake for $280 million in 2016.

As tensions flare over China’s threat to impose trade penalties on allegedly “dumped” Australian wine Mr Frydenberg’s officials earlier told the Chinese-backed bidder he had no plans to approve the sale nine months after the bid was launched.

Treasurer Josh Frydenberg has introduced the temporary zero dollar threshold test for all deals and this is one of the first to be rejected.

The deadline for government decision-making on transactions has been extended from 30 days to up to six months.

All mergers and acquisitions, equity capital raisings and commercial property leases beyond five years with a foreign investor involved now require approval from the FIRB and the Treasurer.

Previously, the general threshold for FIRB scrutiny was $275 million or $1.2 billion for free-trade agreement partner countries in non-sensitive businesses.

The temporary change was rushed through by Mr Frydenberg at the peak of panic about COVID-19 in late March to stop opportunistic foreign buyers – from China and elsewhere – seizing on financially distressed local assets and to safeguard the national interest.

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