Bright Food (Group) has acquired a controlling stake in its arm Bright Dairy from Shanghai Industrial Holdings (SIH), giving a new impetus to the restructuring of local government-owned assets.

In a statement to the Shanghai Stock Exchange, Bright Dairy said Bright Food has agreed to buy an additional 30.2 percent of its outstanding share capital from Shanghai Industrial for a total of 1.55 billion yuan, or 4.93 yuan per share, compared to the closing price of 7.95 yuan yesterday.

The acquisition, arranged by the Shanghai municipal government which controls all three companies, will boost Bright Food's interest in Bright Dairy to 65.45 percent, giving the country's largest food industry group company majority control of Shanghai's dominant dairy producer.

Shanghai-based Bright Dairy, the third-largest dairy producer in China after Inner Mongolia's Mengniu and Yili, is the largest firm among the four publicly-traded firms under Bright Food by sales.

Bright Dairy posted sales of over 7.3 billion yuan last year, but also posted losses of 286 million yuan, compared with 213 million yuan profit in 2007.

However, the milk maker has shown signs of recovery this year to post a net profit of 8.75 million yuan in the first quarter. The firm has set a target of surpassing 10 billion yuan sales in its core business in 2010.

Bright Dairy's A shares have soared 71.5 percent within six months, higher than the average level of 57.6 percent, according to figures compiled by financial information provider Wind Info.

"The deal is in accordance with the local authorities' restructuring plan to revamp State-owned assets by focusing on the mainstay business and spinning off the non-core sectors," said Chen Gang, an analyst with Guojin Securities, adding that the move will help improve Bright Dairy's industry chain and secure its third position.

But he cautioned that the restructuring impact would largely depend on the assignment of the company's management team.

Six institutional investors, including CITIC Securities and Haitong Securities, expect the dairy firm's earnings per share to touch 0.117 yuan in 2009 on average, up from previous year's minus 0.27. The company's shares are expected to trade at 67.26 times earnings this year.

As for Shanghai Industrial, listed in Hong Kong, its intention to sell Bright Dairy's shares has been clearly expressed by the firm's Chairman Teng Yilong in April, when he said the company plans to exit from the dairy sector to focus on its mainstay businesses.

Prior to this, the conglomerate, consisting of property, infrastructure and medicine businesses, sold its 21.17 percent stake in Hong Kong-listed Lianhua Supermarket for 1.06 billion yuan as early as this January.

(China Daily July 29, 2009)