(Yicai Global) Dec. 10 -- Inner Mongolia Mengniu Dairy is to take control of cheese maker Shanghai Milkground Food Tech after several earlier buy-ins as the Chinese dairy giant moves to diversify its product line and cater to Chinese consumers emerging new tastes.

Hohhot-based Mengniu is in negotiations with Chai Xiu, chairman and controlling shareholder of Milkground, the Shanghai-based firm said yesterday. The take-over could take place in the form of private placements or other arrangements. No deals have been inked yet, it added.

Mengniu is already the second biggest shareholder in Milkground, which makes the fifth most popular cheese brand in China. In January it bought a 5 percent stake for CNY287 million (USD43.9 million) and injected CNY458 million into Milkground's cheese-making unit Jilin Guangze Dairy Technology for 42.88 percent equity.

In March, Mengniu planned to invest a further CNY315 million (USD48 million) in a private placement scheme to hike its holdings to 8.81 percent, but the plan was later turned down by Milkground due to changes in the market environment and other reasons, it said at the time.

China's cheese market was worth CNY6.6 billion (USD1 billion) last year, according to data from industry analyst Euromonitor. It has been growing an annual compound rate of 16 percent and is expected to keep expanding at a rate of 12 percent a year until 2024.

Cheese is the fastest growing segment of China's dairy industry, but, as a newly acquired taste, it is mainly dominated by overseas brands. Germany’s Milkana was the top seller last year with 22.7 percent market share, followed by France’s La Vache Qui Rit at 7.7 percent, New Zealand’s Anchor at 6.4 percent, the US’ Kraft at 5.5 percent and China’s Milkground at 4.8 percent.

Milkground has been successful in marketing processed cheese with a Chinese twist. It has developed original snacks such as stringy cheese, cheese sticks and cod-flavored cheese which are particularly popular among children.

There are many other industry giants, such as Inner Mongolia Yili Industrial Group, Bright Dairy & Food and Beijing Sanyuan Foods, trying to enter the field so Mengniu needs to find ways to stay ahead of the competition.

Trading in Milkground’s shares [SHA:600882] was suspended on Dec. 7 as the shake-up takes place and is expected to resume on Dec. 14.

Editor: Kim Taylor