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WELLINGTON, May 1 (Reuters) - France's Danone SA will buy milk formula processing and packing factories in New Zealand to replace supply lost by terminating contracts with the Fonterra dairy cooperative following a food safety scare last year.
The world's largest yoghurt maker is suing Fonterra whose report of contamination prompted client Danone to recall products, including its Karicare and Dumex milk formula brands. Fonterra later said the scare was a false alarm.
Danone, through local subsidiary Nutricia, has agreed to take over Gardians' drying plant and Sutton Group's blending and packing plant, enabling Danone to maintain and increase infant formula exports to China where demand is particularly high.
"This transaction will provide Nutricia with a large milk drying capacity, along with long-term fresh milk supply access," Nutricia said in a statement late on Wednesday without disclosing a purchase price.
"It will also add an infant formula blending and packing facility to Nutricia's existing operations platform."
Danone will buy Gardians' drying plant in New Zealand's South Island together with Gardians' contract with its milk supplier. The capacity of around 20,000 metric tonnes of powder roughly matches that of Nutricia's North Island plant.
The South Island plant will produce Danone's Karicare and Aptamil brands, which are sold in New Zealand and exported to Australia, Hong Kong, Taiwan and China, Nutricia said.
Danone's acquisition is the latest development in New Zealand's so-called white gold rush, as multinational companies compete to increase supplies for China's infant formula market.
China Mengniu Dairy Co Ltd unit Yashili is building a milk formula processing plant in New Zealand, while China's Bright Dairy and Food Co Ltd and Dutch dairy co-operative Friesland Campina have increased investment in New Zealand co-operative Synlait Milk.
Interest in antipodean dairy assets has also spread to Australia, where Canada's Saputo Inc won a bidding war last year for control of Warrnambool Cheese and Butter Factory Company Holdings Ltd for more than A$500 million ($463.28 million). In January, Bright said it would buy Mundella Foods.
Earlier this week, Australian food manufacturer Goodman Fielder, which earns around a quarter of revenue by selling New Zealand dairy products, rejected a $1.2 billion takeover bid from Singapore's Wilmar International Ltd and a Hong Kong-listed investment manager. ($1 = 1.0793 Australian Dollars) (Reporting by Naomi Tajitsu; Editing by Christopher Cushing)