Sanyuan's stock was suspended from trading on Wednesday morning at the Shanghai Stock Exchange, as the auction was held. Its share price rose by the daily limit of 10 percent on Tuesday.

Fan Xueshan, a board director of the Sanyuan Group, said Sanyuan would renew labor contracts with 3,070 staff on Sanlu's payroll after the takeover.

"The auction on Wednesday did not relate to Sanlu's debts. Sanlu's existing production and sales team is skilled and competitive," he said.

He said Sanyuan would provide capital and management to revive the production, and consolidate its market share.

"Strict production monitoring measures will be imposed to ensure the safety and quality of the milk products," he said.

Sanlu stopped production on September 12 last year, as the melamine scandal broke. It leased some of its plants to a subsidiary of Beijing Sanyuan Foods Co. Ltd. in December, days after the bankruptcy petition was accepted by the Shijiazhuang court.

The company's melamine-tainted baby milk powder was found to have caused the deaths of at least six children and sickened more than 300,000 other children.

On December 19, Sanlu borrowed 902 million yuan to pay the medical fees of children sickened by baby formula tainted with melamine and to compensate victims, which increased its debt to 1.1 billion yuan.

Sanlu was fined 49.37 million yuan by the Shijiazhuang court after being convicted producing substandard products in January. The same court also imposed a life sentence for Sanlu chairwoman Tian Wenhua, who was convicted of manufacturing and selling fake or substandard products.

(Xinhua News Agency March 4, 2009)