China Mengniu Dairy Co, the country's largest dairy producer, has held talks to acquire raw milk supplier China Modern Dairy Holdings Ltd, said two people with knowledge of the matter.

The companies' largest shareholders, COFCO Corp and KKR & Co, have been involved in the discussions, the people said, asking not to be identified because the information is private. State-owned COFCO holds 20 percent of Mengniu, while New York-based private-equity firm KKR owns 24 percent of Modern Dairy, according to data compiled by Bloomberg. Modern Dairy rose as much as 18 percent in Hong Kong trading on Tuesday.

Buying Modern Dairy, China's largest raw milk producer, would give Mengniu more control over its milk supply as concerns about safety in the nation's dairy industry linger. Ma'anshan-based Modern Dairy generated almost all of its 735.6 million yuan ($116 million) of revenue for the six months through December from supplying Mengniu with unpasteurized milk.

China Daily-Agencies