(Yicai Global) May 23 -- Nestle SA has invested in Ningxia Cezanne Dairy Industry Co., a "unicorn" in the field of deep processing of dairy products in China, the world's largest food and beverage company said today.

Nestle sold a 95 percent stake in its former Hulunbuir plant to a shareholder of Ningxia Cezanne dairy, while obtaining a 6 percent stake in the company, Angelo Giardino, head of milk, ice cream and industry sales unit of Nestle China, told Yicai Global.

Cezanne Dairy is a successful company in the field of deep processing of dairy products and was once a customer of Nestle. Through the deal, Swiss multinational Nestle is transforming the Hulunbeir dairy business into a new business model, Giardino said without disclosing further details.

Cezanne Dairy was founded in March 2010, with a registered capital of CNY169 million (USD27 million), public information shows. It is also the only producer of milk protein concentrates with nanofiltration and hydrolysis technology in China. Moreover, it is one of the two major producers of light cream in China, only second to Nestle, said Song Kungang, former chairman of China Dairy Industry Association.

The 6 percent stake is the result of final negotiations between the two sides, Cezanne Dairy insiders revealed. Nestlé wanted to take more, but Cezanne Dairy did not agree because it has a plan for an IPO within three years. The price of the deal was not disclosed.

Investment Rationale

Industry insiders believe that Nestlé has two considerations for its shareholding in Cezanne Dairy. First, the partnership between the two parties is complementary, Song believes.

Founded in September 2004 with a registered capital of CNY158 million, Nestle Hulunbeir Ltd. is mainly engaged in producing large packets of powder, cream and solid drinks, public information shows. When it went into production in 2007, it was the 22nd plant Nestle has invested in China over the two decades.

In recent years, due to low domestic milk prices, profits from large packets of powder have dropped. As for deep processing products such as cream, Next to the Nestle plants in the northeastern Heilongjiang province and Qingdao, East China's Shandong province, the Hulunbeier plant is in urgent need of transformation.

Secondly, Nestle's shareholding in Cezanne Dairy is aimed at seizing opportunities in the field of deep processing of dairy products.

As the market for UHT liquid milk and milk powder tends to be saturated as the market competition becomes intense, the market for solid dairy products, such as cream, cheese, protein powder and protein liquid, which have high consumption potential, fast growth and high added value, is growing, Song Liang, a market analyst, told Yicai Global. There are more market opportunities in the new model represented by deep processing of dairy products, he added.

Editor: Mevlut Katik