Fonterra’s stake in San Lu uncertain
Fonterra, which owns 43 per cent of Sanlu – the company at the centre of the melamine scandal in China, has denied reports it is looking to sell its stake, according to ABC Online.
News reports have suggested the New Zealand dairy co-operative has been in talks to sell its share of the company in the wake of the scandal which has led to the death of four babies and the illness of about 54,000 infants. It has been considered a “criminal contamination”, with over 20 people arrested for alleged involvement in adding melamine to milk products to make it appear to have a higher protein content.
Sanlu remains majority state-owned and five of China’s leading dairy companies were summoned to a meeting in Beijing by the Government last week to discuss its fate.
The five companies – Wahaha Group, Wondersun, Inner Mongolia Yili Industrial Group Co., Sanyuan Foods Ltd. and Feihe Dairy – discussed purchasing Sanlu Group Co., according to the Xinhua – the state media agency.
Sanlu is reportedly largely defunct, but a number of companies remain keen to purchase its assets despite the possibility of having to compensate consumers and assume its debt.
Lianfang Chen, an analyst at Beijing Orient Agribusiness Consultant Co., advised that the meeting floated the idea of resuming milk production at Sanlu’s factories, buying raw milk to keep struggling farmers employed and finding a way to ensure Sanlu’s workers could be employed.”Though Sanlu does not have any value as a brand, its processing facility, raw milk bases, production capacity and experienced workers and managerial expertise still have great value. That’s what makes a selling point,” Chen said, according to Canada’s CBC News.
Fonterra downgraded the value of their stake in Sanlu last month by over $100 million to $62 million believing that the brand “cannot be reconstructed”.
“As a direct consequence of the criminal contamination of milk in China, Fonterra has recognised an impairment charge of $139 million against the carrying value of its investment in San Lu. This reflects the cost of the product recall and Fonterra’s anticipated loss of San Lu brand value. Following this impairment charge, Fonterra’s best estimate at this point in time, of the book value of its investment in San Lu is approximately $62 million,” a statement from Fonterra noted.