Fonterra's disastrous joint venture in China, Sanlu, may be sold from under it to a Chinese rival, Beijing Sanyuan Food Co, according to media reports in Beijing.
Sanlu group may be forced into bankruptcy and taken over by Sanyuan, the China Daily reported.
Fonterra, the world's biggest dairy
trader, owns 43 per cent of Shijiazhuang Sanlu Group Co., but to day told the Wall Street Journal that it hasn't been approached about selling its stake.
"No one has contacted our people on the board about a purchase," Fonterra chief executive Andrew Ferrier said.
The Chinese Government has shut down production at Sanlu and all products have been recalled after its baby formula was found contaminated with melamine, leading to the deaths of four infants.
Another 53,000 children - many of whom were drinking Sanlu milkpowders - have fallen ill with various urinary problems and 13,000 infants are still being treated in hospitals.
Fonterra has poured about $200 million into Sanlu since paying $150 for it initial stake in December 2005.
But this week it wrote wrote down the investment's book value by $139 million leaving it worth only about $62 million after Mr Ferrier said the San Lu brand could not be re-constructed.
Shares of Shanghai-listed Beijing Sanyuan Food, a major dairy producer, were suspended on Friday as it reportedly received a government notice to consider a Sanlu merger plan.
The suspension will continue until a decision is made, according to a company announcement.
A Sanyuan official, who refused to give her name, confirmed to the China Daily the company's acquisition plans.
Sanyuan has emerged untainted in the recent milk scandal. As a result, its share prices have soared and sales skyrocketed.
- NZPA
