Hangzhou-based drinks company, Wahaha Group, plans to acquire Sanlu Group, one of the largest dairy suppliers involved in China's tainted milk scandal, Zong Qinghou, chief executive officer of Wahaha has revealed.

Wahaha markets dozens of milk-based drinks such as Nutri-Express and U-Yo, but none of its brands were implicated in the dairy scandal that hospitalized thousands of infants for kidney stone treatment after they drank milk contaminated with the industrial chemical melamine.

According to Zong, Wahaha is looking to expand its dairy business and is attracted by Sanlu's milk production lines and large number of skilled workers.

Wahaha expressed its willingness to work with the existing Sanlu management and promised comparatively small personnel changes, according to an on October 13 report in the Guangzhou Daily.

Wahaha is planning to build milk production bases in Xinjiang, Ningxia, Yunnan, Heilongjiang and Jilin, as alternatives to imported milk powder which has jumped in price from US$2,000 to US$5,700 per ton.

"We need 150,000 tons of milk powder every year. Our demand will allow Sanlu to resume production as soon as the acquisition takes place," the Beijing News cited Zong as saying. From January to June this year, Sanlu produced 41,100 tons of milk powder.

Wahaha netted 5.1 billion yuan in profits in the first nine months of this year, a year-on-year growth of 27.6 percent. Yet the company is meeting fierce rivalry in the Sanlu takeover from other dairy enterprises, including Beijing's Sanyuan Group, and the Wandashan Dairy Co Ltd which is based in Heilongjiang Province.

Sanyuan, whose products were initially found free of melamine contamination, suspended trading in its shares on September 26 after it was disclosed it was seeking to acquire Sanlu. The company's stock prices had soared from 3.4 yuan (US$0.5) per share to 5.59 yuan, a robust growth of 64.4 percent in six consecutive days, after its products were found to be free of melamine.

But according to the Beijing News, Sanlu has recalled more than 10,000 tons of milk powder and faces a compensation bill of 700 million yuan, which, analysts believe, Sanyuan cannot afford. Industry expert Wang Dingmian said it would be difficult for any single enterprise to purchase Sanlu, and another possible scenario is for several companies to cooperate in the acquisition.

(China.org.cn by Wu Jin October 13, 2008)