(Yicai Global) Jan. 24 -- Fonterra Co-operative Group Ltd. has denied speculation it plans to acquire Beingmate Baby & Child Food Co. after the New Zealand firm's Chinese partner widened its annual loss forecast, marking a second straight year in the red. A number of sources believe a takeover is imminent.

The rumors are not true, Fonterra told Yicai Global. The dairy co-operative has ordered its Chinese affiliate to find the source of the speculation and protect the interests of Fonterra's shareholders. Fonterra has an almost 19 percent stake in the Hangzhou-based formula maker.

Beingmate doubled its projected loss to between CNY800 million (USD125 million) and CNY1 billion for 2017, blaming a sales shortfall and new government policies, it said in a statement on Jan. 21. The next day, Fonterra said it was "extremely disappointed" about the wider-than-expected loss. An unidentified source close to Beingmate believes the tension between the two firms reflects a struggle for control.

"We can't write off the possibility of Fonterra intervening to rectify management problems," said Shen Meng, executive director of Xiangsong Capital. "To some extent, Beingmate's problems boil down to poor operations."

Fonterra told Yicai Global that as a minority shareholder it is not involved in Beingmate's operations or management, adding that it will always adhere to its original plan for mutual development with local companies. The memorandum of understanding between the two states that Fonterra will not seek control of Beingmate, unless the Chinese firm's largest shareholder pulls out, the insider said.

A Fonterra take over is more than likely, said Zhu Danpeng, a researcher at China Brand Research Institute. Beingmate is its window into China, and it is not willing to give that up, he added.

Xiangsong Capital's Shen believes it would be difficult for Fonterra to stage a hostile takeover, but if the problem persists, he thinks it is possible that the Auckland-based company may convene shareholder meetings and sue Beingmate -- though that would be the worst outcome for both parties.

Shares of Beingmate have fallen over the past six months, reaching an all-time low of CNY5.81 (USD0.91) yesterday before closing at CNY5.9. Fonterra bought its stake in the company for CNY18 a share in 2015, paying USD553 million in total.