Danone invests in 2 deals in China

French food and beverage group Danone will invest 2.6 billion yuan (US$417 million) in two deals to strengthen its presence in China and tap the huge market potential.

Prominent Achiever Ltd, 51 percent owned by China's state-owned agricultural and food company COFCO and 49 percent by Danone, will acquire 8.3 percent in China's largest dairy producer Mengniu Dairy Co from COFCO, according to a joint statement yesterday.

"The partnership with COFCO and Mengniu will allow Danone brands to reach the largest number of Chinese consumers," Danone Chairman and Chief Executive Officer Franck Riboud said in the statement.

COFCO will remain Mengniu's single largest shareholder with a 27.83 percent stake.

Danone, the world's largest yoghurt maker with brands such as Actimel and Activa, also set up a joint venture with Mengniu for the production and sale of chilled yoghurt in China.

Danone will own 20 percent and Mengniu 80 percent of the joint venture, which will help Danone boost sales in China's yogurt market.

Mengniu's Chief Executive Officer Sun Yiping said in the statement that the deal would strengthen its technical innovation capacity in the fresh dairy product market and help the company deliver a wider range of higher-quality products to consumers.

The French food group will share its quality control and product innovation expertise while Mengniu will be able to leverage its distribution capacity in the yogurt sector.

The transactions are subject to approval.

Mengniu accounted for 16.8 percent of China's yoghurt market in 2012, up from 16.5 percent in 2011 and 15.9 percent in 2010, according to Euromonitor. It expects the market to grow to 53.9 billion yuan this year and to 71.6 billion yuan by 2015, more than double its value in 2010.

Danone sells the Bio yogurt and Dumex infant formula in China and has 22 factories in the country.

Foreign food companies are eying a bigger share of the Chinese market and betting on consumer demand for healthier and better-quality products in China after a 2008 scandal involving chemical-laced products.

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