Mead Johnson, Biostime fined over formula probe

Updated: 2013-08-07 10:25


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NEW YORK/HONG KONG - Mead Johnson Nutrition Co and Hong Kong-listed Biostime International Holdings said they would pay fines in relation to a Chinese probe into possible price fixing and anti-competitive practices by foreign baby formula makers.

The fines are the first to be publicly announced in the wake of the antitrust review by the National Development and Reform Commission (NDRC) and coincide with separate pricing investigations into the pharmaceutical sector as well as gold trading.

Mead Johnson, the maker of Enfamil formula, said it would pay a penalty of about $33 million. It gave no details on what the NDRC said it had done wrong.

Infant milk producer Biostime, which imports most of its products, said it had been fined 162.9 million yuan ($26.6 million) for price-fixing.

Mead Johnson said the NDRC had assessed administrative penalties against other milk formula companies doing business in China, where the infant milk market is set to grow to $25 billion by 2017. It did not identify the firms.

Other companies being investigated include French food group Danone, Nestle and Abbott Laboratories. Those companies were not immediately available for comment.

In the wake of the NDRC probe, Mead Johnson and others cut prices on their baby formulas.

Foreign infant formula is highly coveted in China, where public trust was damaged by a 2008 scandal in which six infants died and thousands of others were sickened after drinking milk tainted with the toxic industrial compound melamine. Foreign brands now account for about half of total sales.

Mead Johnson said its payment, which resolves the NDRC review, would reduce its full-year earnings by about 12 cents per share, but it reiterated its 2013 earnings forecast for profit, excluding one-time items, of $3.22 to $3.30 per share.

Biostime said on Tuesday its shares had been suspended pending an announcement related to the investigation. Trading in its shares will resume on Wednesday.

The company had said previously that a unit based in China's southern city of Guangzhou was being investigated by the NDRC over suspected price-fixing.

Analysts said the pricing investigation could also result in tougher rules governing imports.

The milk sector is still relatively young, with consumption of dairy products growing at an annual compound rate of 20 percent, a contrast to US and European markets where demand has been shrinking in the past decade.

China's domestic milk companies have been scrambling to rebuild trust after a series of scandals left local brands' reputations in tatters and fuelled demand for overseas brands or imported products, which are perceived to be of higher quality.

That image was dealt a blow in recent days when New Zealand's Fonterra, the world's biggest dairy exporter, apologised for a milk powder contamination scare. That has led to product recalls in China, Hong Kong and elsewhere in Asia.