(Yicai Global) Sept. 21 -- Inner Mongolia Yili Industrial Group Co. [SHA:600877] has made a takeover bid for Murray Goulburn Co-operative Co. [ASX:MGC], Australia's largest milk processor.

Media reports about a proposed acquisition of Murray Goulburn at USD0.95 (AUD1.2) per share are inaccurate, the Chinese dairy group said in a statement issued via the Shanghai Stock Exchange yesterday. Yili said it has only submitted a non-binding strategic development proposal thus far.

Murray Goulburn produces various dairy products ranging from cheese and infant formula to butter and liquid milk. Milk and milk powder products from its Devondale brand are available on the Chinese market. 

The firm saw a slump in earnings in recent years. It reported operating losses of AUD370.8 million for the fiscal year-to-date on a 22-percent drop in milk sales in its recent financial statements.

A market boom in China allowed Murray Goulburn to enjoy rapid sales growth in its liquid milk and formula businesses in 2014 and 2015. It then ramped up milk sourcing, which has proven to be a misstep, Song Liang, a dairy industry analyst, told Yicai Global.

Back then it purchased milk at a premium about 10 percent higher than the price Fonterra Co-operative Group [ASX:FSF], a dairy group based in New Zealand, offered. With the saturation of the Chinese market and changes in cross-border e-commerce policies, Murray Goulburn's sales took a dive, leading to cash flow problems, Song said.

Yili has competition for the Murray Goulburn bid. They include China Mengniu Dairy Co. [HKG:2319], China Resource Ng Fung Ltd., Canada's Saputo and Bega Cheese Ltd. [ASX:BGA] and Fonterra Co-operative Group, The Australian reported.

China Resource Ng Fung, a subsidiary of state-owned China Resources Group, is Murray Goulburn 7th largest shareholder with a roughly 6-percent shareholding in the firm.

Yicai Global contacted Mengniu Dairy about the matter. The company said that it has made some investments in Australia and that it subsidiaries are interested in investing in the market. It did not confirm its intention to bid for the milk processing firm.

If Yili beats the others, it will still need to clear the deal with government regulators and Murray Goulburn's board of shareholders.

Several Chinese companies have successfully acquired Australian dairy businesses this year. Ausnutria Dairy Corp. [HK:1717] took over Australian Dairy Park Pty on May 23. Mason Group Holdings Ltd. [HK:0273] purchased an 80-percent stake in infant formula and nutritional food manufacturer Blend and Pack Pty on July 4.