New Zealand's dairy farming sector reacted cautiously to news Friday that Chinese food giant Shanghai Pengxin Group was looking to expand its New Zealand farming operations with a takeover of the South Island-based Synlait Farms Ltd..

Shanghai Pengxin, which bought 16 North Island dairy farms last year after a controversial and long-fought legal battle, had entered a joint venture with two Synlait Farms executives that was reported to be offering 85.7 million NZ dollars (72.6 million US dollars) to buy Synlait Farms, which operates 13 farms and a total of 13,000 cows.

SFL Holdings was offering 2.10 NZ dollars a share, making a 31- percent premium on the trading price of 1.60 NZ dollars, the BusinessDesk news service reported.

If the takeover was successful, SFL planned to inject a further 20 million NZ dollars in fresh capital to reduce debt and accelerate investment, said the report.

Shanghai Pengxin owned about 74 percent of SFL through New Zealand Standard Farm, a subsidiary of its Milk New Zealand unit.

The formal takeover offer was expected to be made next month, with an initial closing date of Dec. 6. The offer would be conditional on SFL achieving 90 percent ownership and approval from the Overseas Investment Office.

Synlait Farms supplied about a 10th of the milk purchased by listed dairy processor Synlait Milk, which is 40-percent owned by Shanghai-based Bright Dairy.

New Zealand Federated Farmers President Bruce Wills said his organization would watch developments very closely to see how the takeover bid would fare under the requirements of New Zealand's Overseas Investment Act.

"Clearly this is a large scale investment covering 4,000 hectares of irrigated dairy land," Wills said in a statement.

"Federated Farmers wishes to ensure there are real economic benefits to New Zealand farming and to New Zealand itself," he said.

"You could say we are being cautious because we are attuned to the prospect of vertical ownership of both land and processing. Speaking plainly, such an eventuality would concern us," he added.