China-based infant formula manufacturer Beingmate is to buy 65% of a subsidiary of local dairy products company Meilijian Group.
Beingmate, in which New Zealand dairy giant Fonterra is a shareholder, has agreed to pay CNY117m for the stake in Meilijian's unit in Dunhua, in China's north-eastern Jilin province.
In a statement, Beingmate said the deal ensures the company will secure a "long-term, stable supply of high-quality milk".
Meilijian Dunhua was established by Beingmate in 2007 and sold to Meilijian in 2008. Its major business is supplying other Meilijian subsidiaries in the eastern provinces of Zhejiang and Anhui. In 2014, Meiliijan Dunhua earned CNY12.8m in net profit, compared with a loss of CNY4.25 million in 2013.
Meilijian Group, based like Beingmate in the eastern city of Hangzhou, has its own dairy farms and manufactures infant formula as well as other dairy products, including milk and condensed milk.
The deal was announced as Beingmate reported its financial results for 2014. Net profit dropped by 90.4% to CNY68.8m due to a high level of inventory and fierce price competition in the market.