China dairy company China Mengniu Dairy Co. Ltd. has called off a deal to acquire Australia's Lion Dairy & Drinks as tensions between China and Australia escalate. Australia had threatened to block the acquisition.
Mengniu Dairy and Lion Dairy's owner, Japan beverage company Kirin Holdings Co., originally agreed to the sale of Lion's domestic milk and juice business in November. Mengniu agreed to buy the business, which owns popular Australian brands such as Vitasoy, Pura and Dairy Farmers, for $430 million.
Kirin and Mengniu announced they were canceling the deal in separate statements. The companies agreed regulatory approval was "unlikely" to happen in the current political climate.
After the original deal was announced Australia's regulators were initially supportive. In February the Australian Competition and Consumer Commission said it saw no reason to oppose the acquisition. But relations between China and Australia soured - particularly after the spread of the coronavirus pandemic.
China took offense with Australia's decision to call for an investigation over the origins of the pandemic at the behest of the U.S. China later imposed tariffs on imports from Australia - including billions of dollars of beef and barley.
Last week reports surfaced pointing to a possible government intervention to halt the deal. Australia's Treasurer and deputy leader of the Liberal Party Josh Frydenberg had reportedly moved to block the deal as a result of "diplomatic issues." The deal itself was still in the process of being approved by Australia's Foreign Investment Review Board.
On Tuesday Frydenberg confirmed he had personally told Mengniu Dairy that its planned acquisition was "contrary to (Australia's) national interest." Frydenberg's warnings to both companies likely led to their decision to call off the deal. In its statement Lion Dairy said it was disappointed in the outcome and added it would consider other steps to push the company forward.
