China Mengniu Dairy Co.’s previously announced deal to buy Australian business Lion Dairy & Drinks from Japan’s Kirin Holdings has fallen through.

The news follows media reports last week that the Australian government could block the deal amid growing tensions between Australia and China.

In a brief statement to the Hong Kong Stock Exchange, China Mengniu confirmed the deal had been terminated.

Kirin said in a widely reported statement the two companies had agreed to terminate the AUD600m (US$430m) deal, signed last November, because approval from Australia’s Foreign Investment Review Board (FIRB) was unlikely to come.

The deal had won approval from Australia’s competition regulator, the ACCC, in February.

News agency Reuters quoted a Kirin statement which said: “This is an unfortunate result, but the revival and restructuring of Lion Dairy and Drinks are a top priority and we will continue to look for the best scenarios for the business with Lion.”

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By GlobalData

The Japan Times newspaper said Australia’s Treasurer Josh Frydenberg advised China Mengniu the sale of Lion Dairy and Drinks “would be contrary to the national interest”.

Stories suggesting the deal would fall through emerged in Australia at the end of last week. The Australian Financial Review cited unidentified sources who blamed “diplomatic issues” for the move.

Tensions between the two countries have been growing during the coronavirus pandemic after Australia called for an international inquiry into the origins of the outbreak, which was first reported in China at the end of last year.

Canberra has also criticised China for the security laws it has introduced in Hong Kong.

In turn, Beijing has imposed import tariffs on Australian barley and suspended some beef imports. It has also begun an investigation into claims cut-price Australian wine imports are unfairly hurting its own producers.

More recently, some Australian politicians have issued concerns related to food security and the country’s milk supply, and brands being purchased by companies with ties to the Chinese government.

Lion Dairy & Drinks operates 13 manufacturing facilities and produces milk-based beverages, yogurt, white milk and plant-based products. It owns brands such as Pura milk and Dare iced coffee.