Several domestic dairy makers are said to take over the plants of Sanlu Group Co., which is almost on the brink of bankruptcy following the recent tainted milk scandal.

Beijing Sanyuan Group Co. is expected to buy seven milk plants from Sanlu while Wondersun, a Heilongjiang Province-based dairy maker, will also buy a factory, the 21st Century Business Herald reported yesterday, citing people familiar with the plan to unload assets.

Beijing Sanyuan Foods Co., the listed unit of the Sanyuan Group, may sell additional shares in exchange for the plants, the Guangzhou-based newspaper said.

Officials from Sanyuan were not available for comment and a communications official at Wondersun said he is not aware of the matter in a telephone interview with Shanghai Daily.

Sanyuan was among the first batch of domestic dairy makers to express interest in buying Sanlu's remaining assets, a move encouraged by the central government to consolidate the industry.

It suspended share trading from September 26 for the possible merger. But negotiations moved slowly not only because of interest shown by more competitive bidders including Wondersun and Wahaha Group but also because the successful bidder will have to pay compensation to the victims of the tainted milk products.

The banned chemical, melamine, has been found in infant milk and other dairy products made by 22 major Chinese milk producers, including Sanlu, since September. Melamine has been blamed for the deaths of four babies and more than 54,000 children were sent to hospitals across the nation.

The melamine scandal has triggered massive recalls and stricter curbs on products made for domestic and overseas markets.

Sanlu is 40 percent owned by Fonterra Cooperative Group Co..

(Shanghai Daily November 5, 2008)