Sanyuan is to purchase seven dairy plants from Sanlu Group and take over part of its debts. The 21st Century Business Herald released the detailed information about these plants today.

They are Shijiazhuang-based No.1 Dairy Plant, No.2 Dairy Plant, No.3 Dairy Plant, No.6 Dairy Plant and three others located respectively in Tangshan, Shandong and Henan. As an old plant, No.3 Dairy Plant produces both milk powder and liquid milk, No.2 Dairy Plant specializes in liquid milk production and No.6 Dairy Plant mainly produces milk powder.

The dairy plant in Tangshan went into operation in February 2006, producing 200,000 tons of formula milk powder annually. At the time, Sanlu had signed a joint venture contract with Fonterra, who injected 864 million yuan and held 43 percent of the latter's shares. The then board chairman of Sanlu Group, Tian Wenhua, stated that over the next three years Sanlu would invest 3 billion yuan in dairy plant mergers and acquisitions, in order to form a national industrial network. The investment program in Tangshan was just a prelude to this ambitious program.

In April 2006, Sanlu Group invested 400 million yuan in a liquid milk production base in Weifang, Shandong Province: Sanlu Group (Shandong) Dairy, which is capable of producing 300,000 tons of liquid milk every year. Only six months later, another dairy program in Xinxiang, Henan province, was launched, with 120 million yuan invested. 100,000 tons of lactic acid bacteria drink and yoghurt can be produced annually.

These three programs are the most notable steps in Sanlu's expansion since it became a joint venture.

An insider said that Sanlu holds 90 percent of each of the seven plants' shares, thus Sanyuan may adopt trusteeship first and then purchase the assets, with the total acquisition cost possibly as high as 800 million yuan. Supported by local government, Sanyuan will take on all the Sanlu staff and bear part of its debts. Through this win-win deal, Sanyuan can take over Sanlu's good-quality assets and Hebei provincial government can solve the problems of personnel placement and debt sharing. But the full information has not yet been disclosed as to how much debt Sanyuan will finally bear. The insider noted that Sanyuan's significant move is strongly backed by the Beijing municipal government, grateful for the support of Hebei's water supply.

It is also reported that Sanyuan sent 18 employees to Sanlu Group on November 5 for further investigation, which is still under way.

(China.org.cn by Fan Junmei, November 18, 2008)