China Mengniu Dairy has increased its equity interest in cheese manufacturing firm Shanghai Milkground, through the former’s subsidiary Inner Mongoliad.

With this deal, China Mengniu Dairy has increased its stake in Shanghai Milkground to 23.8% from 5%, which it acquired in March.

According to the agreement, Inner Mongolia will acquire one million shares of Shanghai Milkground at a price of CNY3bn ($459m).

The amount will be paid in cash to Shanghai Milkground at the deal completion.

To fund this transaction, China Mengniu Dairy intends to use internal resources of the group and bank financing.

Shanghai Milkground is engaged in the production and distribution of dairy products such as cheese, liquid milk, butter, cream, condensed milk, and cheese slices.

It operates five manufacturing facilities across China and is said to be a leading cheese brand in the country.

With substantial production capabilities and techniques, Shanghai Milkground is said to have rapidly expanded its portfolio in recent years.

The deal is said to be part of China Mengniu Dairy’s development strategies.

In a statement, China Mengniu Dairy said: “The company is optimistic about the future prospects of the cheese market and recognises Shanghai Milkground’s long term development potential.

“Having considered the above, the board concluded that the terms of the share subscription agreement and the cooperation agreement and the transactions contemplated thereunder are fair and reasonable and in the interests of the company and its shareholders as a whole.”

China Mengniu Dairy said that the deal was with Shanghai Milkground’s controlling stakeholder Xiu Chai, which means that China Mengniu Dairy will assume a new position in the company, as defined by Shanghai Milkground’s rules.

Last September, China Mengniu Dairy signed a scheme implementation deed to acquire 100% of the issued share capital of infant formula producer Bellamy’s Australia for A$1.5bn ($1.03bn).