Sale closes book on milk saga

Fonterra's dream-turned-nightmare venture into the Chinese dairy market officially ended yesterday, with the Sanlu Group being sold at auction to Beijing producer Sanyuan Foods.

Sanlu - which played a central role in last year's tainted milk scandal - sold for $182 million, less than half its one-time worth of $470 million.

The auction price barely covered the cost of its assets, which included its land use rights, buildings and machines and equipment totalling about 800 million yuan, ($237 million).

Fonterra's $200 million investment in Sanlu had also to be completely written off.

Sanyuan's share price rose by the daily limit of 10 per cent ahead of the auction, China's Xinhua news agency reported.

Sanlu - in which Fonterra had a 43 per cent stake - was the first of the Chinese dairy companies revealed to be spiking its powdered milk with melamine, a chemical used to fake protein levels.

The company stopped production on September 12, after the tainted powder was found to have killed at least six children and made about 300,000 others ill.

"Fonterra deeply regrets the harm and pain this tragedy has caused so many Chinese families," chief executive Andrew Ferrier said last month, after accepting the Chinese court's guilty verdicts. Sanlu was fined $14.5 million and its chairwoman, Tian Wenhua, was sentenced to life imprisonment.

The company was declared insolvent on February 12 after failing to repay debt that surpassed its assets.

Sanyuan had been leasing Sanlu's plants since December.

Last year, the group took a loan of $267 million to pay medical fees for the sick children and victim compensation.

Under a Chinese Government-sanctioned compensation plan - funded mainly from contributions by Sanlu and other dairy firms found with tainted products - families with a child who had died received the equivalent of $59,000, while others received between $590 and $9000.

But instead of easing public anger, the scheme prompted hundreds of families to consider filing suit after China's highest court this week said cases would be accepted.

"There will be lawsuits against all 22 dairy companies," said Zhao Lianhai, who has rallied victims' parents through a website, according to AP. He said the 600-plus families wanted compensation for emotional harm plus medical and other expenses.