Bloomberg News

Mengniu Falls as Website Hacked Amid Tainted Milk Scandal

December 29, 2011

(Updates with closing share price in second paragraph.)

Dec. 29 (Bloomberg) -- China Mengniu Dairy Co., the nation’s largest milk producer, fell to the lowest in more than two years in Hong Kong trading after hackers accessed its website amid a scandal over contaminated milk from the company.

Mengniu dropped 7.4 percent to HK$18.52, the lowest since Sept. 4, 2009, at the 4 p.m. close of trading on the city’s stock exchange. The Hang Seng Index lost 0.7 percent.

Investors are selling the stock on expectations consumers will stay away from Mengniu’s products, according to Jason Yuan, an analyst at UOB Kay Hian Holdings Ltd. Mengniu shares plunged 24 percent yesterday, the biggest one-day drop since September 2008, after Chinese regulators found excessive levels of a toxin in its milk.

“Internet users have called for a boycott of Mengniu’s products,” Yuan said in a telephone interview from Shanghai. “We believe some consumers could give up drinking milk or switch to other brands, which will affect Mengniu’s sales.”

Mengniu’s website showed that it had been affected by unauthorized access as early as 11:26 p.m. local time yesterday and was restored to normal after midnight. Hackers changed the title of mengniu.com.cn to “Hacked By:Drift” and posted a message saying “Mengniu once made the Chinese people strong and proud, but now it’s doing harm to its own people.”

A call to the mobile phone of Lu Jianjun, a Mengniu spokesman, was answered by a woman, who said Lu was in a meeting. She declined to be identified or comment further.

Above-Standard Levels

China’s General Administration of Quality Supervision, Inspection and Quarantine found above-standard amounts of a toxin in a batch of Mengniu milk products and another from closely held Fujian Changfu Dairy Industry Group Co. during a random inspection, according to test results released on the regulator’s website Dec. 24.

Moldy feed given to cows led to the excessive levels, Mengniu said Dec. 28. The company has destroyed the contaminated products and will strengthen its quality control, Mengniu said.

The discovery adds to food scandals in China that include an illegal additive to pork products this year and melamine- tainted formula milk in 2008 that killed at least six infants and sickened 300,000 nationwide. China’s government has shut 5,000 companies, arrested 2,000 people, and handed down at least one death sentence in a crackdown on food safety in 2011.

China Modern Dairy Holdings Ltd., a milk supplier that got 97 percent of revenue from Mengniu in the year ended June. 30, rose 1.9 percent to HK$1.58, after falling 13 percent yesterday.

The company believes its products aren’t involved in the Mengniu contamination incident, Modern Dairy said today.

--Michael Wei. Editors: Lena Lee, Dave McCombs

To contact Bloomberg News staff for this story: Michael Wei in Shanghai at mwei13@bloomberg.net

To contact the editor responsible for this story: Stephanie Wong at swong139@bloomberg.net


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