A group of Chinese dairy producers will meet today to discuss a possible takeover of Sanlu, which is facing bankruptcy in the wake of the tainted baby formula scandal in which a chemical substance was found in its products.

However, analysts said that although the meeting may open the door for a joint purchase of Sanlu, the acquisition won't proceed quickly because no potential buyers have so far revealed concrete plans, possibly due to heavy financial burdens to compensate victims who drank the melamine-tainted milk.

The domestic milk manufacturers who are interested in buying Sanlu include Wahaha Group Co Ltd, Wondersun, Sanyuan Food Co and Heilongjiang-based Feihe Dairy.

Inner Mongolia Yili Industrial Group Co, the nation's biggest dairy maker as well as another victim of the widespread milk scandal, also agreed to attend the meeting to discuss the future of Sanlu, according to Bloomberg News which cited Pan Gang, its chairman, as saying.

"Despite the damage to the brand name, Sanlu's assets, including the production line and supply chain, are still attractive," said Wang Peng, an analyst at Shenyin Wanguo Securities Co Ltd. "But the biggest problem focuses on how to deal with the huge debts and probably numerous compensation claims afterward," he said.

Sanlu, 43 percent owned by New Zealand's Fonterra Cooperative Group Ltd, was the first milk manufacturer that was found to have the banned melamine in baby milk products.

Industrial experts said it is unlikely for a single company to take over Sanlu as its debts totaled more than 700 million yuan (US$102.9 million), and that's not counting the massive compensation claims. China's milk industry is likely to consolidate after the scandal, industry observers said.

(Shanghai Daily October 17, 2008)