Chinese company buys controlling stake in Israeli food giant Tnuva-Hezi Sternlicht, Israel Hayom Staff and Reuters

China's government-owned Bright Food Group purchases 56% of Israel's biggest dairy producer, valued at $2.5 billion, from British firm Apax • Israel will not receive taxes from the sale as the deal is between two foreign companies.

Hezi Sternlicht, Israel Hayom Staff and Reuters

The iconic Tnuva cottage cheese package | Photo credit: Ami Shooman

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China's government-owned Bright Food Group has struck a deal to buy control of Israel's largest food company, gaining new products and technology as it chases rivals that have overtaken it in China's fast-growing cheese and dairy markets.

Bright Food said on Thursday that under the terms of a preliminary accord, it would buy 56 percent of dairy firm Tnuva from British private equity house Apax Partners for an undisclosed sum. As the deal was signed, Tnuva was valued at 8.6 billion shekels ($2.5 billion), up from $1 billion when Apax and Israeli investor Mivtach Shamir Holdings took control in 2008.

The deal is one of the largest in Israeli market history. But, unlike previous foreign acquisitions, the state is not expected to count much tax revenue because Tnuva is already majority owned by a foreign firm.

Tnuva deferred comment on Wednesday to Apax, which said the deal had not yet been sealed.

The deal, the latest in a multi-billion dollar overseas acquisition spree by Bright Food, will give the Chinese firm access both to new cheeses and the Israeli firm's technological know-how in dairy production, trade sources and analysts said. Best known for its cottage cheese, Tel Aviv-based Tnuva booked revenue of 7.17 billion shekels ($2.05 billion) in 2013.

The investment comes as increasingly affluent Chinese consumers opt to pay more for imported goods in the wake of safety scandals in local food supply chains, attracting the attention of global food giants as well as China's producers. The Chinese cheese market will be worth 2.7 billion yuan ($433.13 million) this year, doubling to 5.3 billion yuan by 2018, according to consultancy Euromonitor.

"China is still a niche market, but there's lots of room for growth. We're getting increasing interest from international clients who are interested in China," said Matthieu David-Experton, Shanghai-based CEO at Daxue Consulting.

"The imported aspect is key because it makes it a more premium product in China and plays into the food safety trend," he said.

Mivtach has 10 days to decide if it wants to join Apax and sell its 21 percent stake to Bright Food, according to a source close to the deal. Apax declined to comment on details of the deal, while a spokesman for Mivtach could not immediately be reached.

A group of kibbutzim, or cooperative farms, owns the rest of Tnuva. Bright Food said it will look to strengthen cooperation with smaller shareholders, rather than buy them out, and hopes to close the deal by the end of the year.

As China's cheese market has developed, Bright Food has lost out. The country's dominant cheese producer with a quarter of the market by value in 2009, it dropped back to hold just 8.3 percent last year, according to Euromonitor data.

The deal could also give Bright Food access to Tnuva's dairy processing technology, increasing its dairy output, analysts said. Bright Food was China's fourth-biggest dairy producer last year by retail value.

"Israel is a country with highly developed agriculture and animal husbandry techniques. Tnuva, as Israel's largest food company, has a long history and various products and large market share," a Bright Food spokesman said in a text message sent to Reuters.

Bright Food has been making ripples globally in the past few years, with deals to buy Australian branded food business Manassen Foods and British breakfast cereal maker Weetabix valuing the firms at 500 million Australian dollars ($460.85 million) and 1.2 billion pounds ($2.03 billion) respectively.

In January, Bright Food bought Australian dairy company Mundella Foods, while other previous purchases include New Zealand's Synlait Milk Ltd.

Bright Food owns four mainland-listed companies including Shanghai Jinfeng Wine Co., Shanghai Haibo Co., Shanghai Maling Aquarius Co. and Bright Dairy & Food Co.