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Bright Dairy has paid $82 million for a 51% stake in the processing and marketing assets of the privately owned Canterbury processor, which means three of the country's six largest dairy companies would be majority or significantly foreign owned.
The other three - Fonterra, Tatua and Westland Milk - were all locally-owned co-operatives.
Synlait Milk chairman Graeme Milne said Synlait Ltd would continue to own Synlait's farming assets.
Yesterday, he hailed Bright Dairy's investment as positive for his company and New Zealand.
Synlait would embark on production of high specification infant formula powder and use Bright Dairy's distribution and marketing expertise to sell it in China.
Synlait will immediately start expanding its Dunsandel milk-powder factory to double powder production from the present 55,000 tonnes a year in time for the 2011-12 season, creating 50 to 60 jobs.
Bright Dairy is China's third-largest dairy company by volume.
It owns 210 farms in China and sources milk from another 500.
It also owns 23 processing factories, including the world's largest yoghurt factory, and delivers dairy products to two million homes each day.
Listed on the Shanghai Stock Exchange, it has market capitalisation of $NZ1.7 billion and in the last financial year reported revenue of $NZ1.63 billion.
The move comes as debate rages over whether Chinese-backed company Natural Dairy should be allowed to buy 16 North Island dairy farms.
Synlait chief executive John Penno said Bright Dairy's investment required Overseas Investment Office approval, but he doubted that would be refused, as the deal did not involve farm ownership.
He said in an interview that Synlait would have liked to remain New Zealand-owned and it considered a public float, but the recession and weak capital markets worked against it.
Bright Dairy brought more to the deal through Chinese market reach than any New Zealand company could.
"This is about putting together a partnership through a combination of what we have in great people, access to very good milk and great technology, and their marketing horsepower."
Bright Dairy would have four of the seven directors but Synlait would appoint the chairman.
Mr Penno said global sales of toddler milk formula were expected to grow at 12.5% from 2008 to 2013, but Asia Pacific growth was expected to be 15.2%.
Product will be packed in New Zealand to ensure food safety and quality standard.
It will carry Synlait, New Zealand and Bright Dairy brands.
Mr Penno said Synlait would be free to continue selling milk powder to other customers, which would make up the bulk of its sales.
"We need to maintain a broad range customer base and Bright Dairy is encouraging us to maintain that."
Synlait receives about 20% of its milk from Fonterra, a regulatory requirement of the Dairy Industry Restructuring Act, and Mr Penno said new farmers had already approached the company, which should reduce its reliance on Fonterra milk to about 10% when the new drier was built.
Bright Dairy vice-president and head of marketing Li Ke said this was her company's first off-shore investment in milk processing.
Who owns New Zealand dairy companies?
• Singapore-owned Olam International is the second largest shareholder in Open Country Dairy.
• Nutritek is the largest shareholder in New Zealand Dairies.
• Japanese corporation Mitsui owns 13.5% of Synlait Ltd.
• Chinese dairy company Bright Dairy proposes buying 51% of Synlait Milk.