China Mengniu’s A$1.5 billion offer for Bellamy’s Australia marks the end of the tainted milk scandal of 2008

China’s tainted milk scandal in 2008 has finally come full circle, with China Mengniu Dairy Co. making an offer to takeover Tanzanian-based organic formula milk producer Bellamy’s Australia Ltd earlier in the week.

China Mengniu – China’s second largest milk producer – has offered to buy out Bellamy’s for A$1.5 billion in an all-cash offer. The offer price of A$13.25 per share was priced at a 59% premium to Bellamy’s last traded price of A$8.32 on Sept 13.

Bellamy’s board of directors unanimously recommended that its shareholders vote in favour of the offer, while the deal still requires regulatory approvals from Australia’s Foreign Investment Review Board.

The offer could not have come at a better time for Bellamy’s. The organic baby food and formula producer had been waiting on Chinese regulatory approvals to sell their products in China. The delays hit Bellamy’s bottom-line with full year earnings falling 36% to A$30.1 million.

At the time, the market did not take the news kindly and Bellamy’s share price slumped from its peak of A$22.52 in March 2018, only recovering upon the news of China Mengniu’s offer.

To be sure, China Mengniu has been actively looking for acquisition targets to grow its market share, as competition heats up with its biggest competitor Inner Mongolia Yili Industrial Group Co. In 2017, China Mengniu acquired China Modern Dairy Holdings Ltd. for HK$6.92 billion, while Yili later acquired New Zealand’s Westland Co-operative Dairy Co.

Remembering the tainted baby milk scandal

Amid the spate of investments, Bellamy’s may well have been on China Mengniu’s radar for a while, after the tainted baby milk scandal in 2008.

Back when the scandal first broke, China’s domestic milk producers were found to have diluted their raw milk to increase their profits, and added the chemical melamine to artificially bump up its protein content and escape detection. The tainted milk was later used by other companies in the production of formula milk.

As a result, six infants died after consuming the tainted milk, while nearly 100,000 others were found to have been affected. Some babies were reported to have developed kidney stones, while others had to be hospitalised for acute kidney failure.

China Mengniu – together with Sanlu, Yili and Yashili – was among the milk producers who were affected by the melamine contamination, and recalled all of its milk powder off Chinese store shelves while issuing public apologies.

In the months and years after, Chinese parents shunned locally produced formula milk, in favour of formula milk produced outside of the country. The wealthier Chinese parents were flying out of the country to purchase formula milk in bulk for their babies, while others requested their overseas based relatives to ship formula back home for them.

Their main brand of choice? Bellamy’s Organic.

A particularly poignant photograph was published in the media showing empty shelves that once held Bellamy’s organic formula milk in an Australian supermarket, even as other brands of formula milk remained fully stocked.

Now, over a decade later, China Mengniu may have rebuilt trust among Chinese consumers, but the acquisition of Bellamy’s – a well trusted premium brand among Chinese parents – may well be the feather they need on their metaphorical caps.