Australian government may block China Mengniu Dairy-Lion purchase deal

The Australian government may block China Mengniu Dairy’s purchase of Lion Dairy & Drinks, the Australian Financial Review has reported, citing a source who blamed “diplomatic issues”.

China Mengniu offered to buy the Australia-based dairy and drinks manufacturer from Japan’s Kirin Holdings in November. The competition regulator approved the AUD 600 million ($429.17 million approx.) deal in February.

Without identifying its sources, the AFR said that Treasurer Josh Frydenberg has gone against the advice of the Foreign Investment Review Board (FIRB) and Treasury, which were in favour of approving the purchase.

In June, Australia announced what Reuters says will be ‘the biggest shakeup of its foreign investment laws in almost half a century’. This reportedly includes last-resort powers to the treasurer to vary or impose conditions on a deal, or force a divestment after it has been approved by FIRB.

The news of a possible veto of the China Mengniu purchase comes against a backdrop of deteriorating diplomatic relations between the two countries, after Canberra called for an independent inquiry into the origins of Covid-19.

China – Australia’s largest trading partner – recently imposed dumping tariffs on Australian barley and halted beef imports from four Australian firms.

Earlier this week, Beijing announced that it had launched an anti-dumping probe into Australian wine imports, a move that caused shares of Treasury Wine Estates to fall by as much as 20%.

Chinese investment to Australia more than halved in 2019 to $2.4 billion, and the number of deals is likely to keep falling in 2020, according to bankers cited by Reuters. The diplomatic tension and Covid-19 are anticipated to be behind the fall.