Danone to form a joint venture and invest in China’s biggest dairy producer

Danone, owner of Activia yogurt and Evian water, will spend about €325 million to form a joint venture and invest in China’s biggest dairy producer to expand its brands in the most populous nation.

Danone will have an initial indirect interest of about 4 per cent in China Mengniu Dairy, with the aim of increasing that in the future, the Paris-based company said yesterday. It will also set up a venture with Mengniu for yogurt products in China. Mengniu shares surged the most in four years.

The tie-up will help Danone boost sales in China’s yogurt market, which Euromonitor International estimates will grow 57 per cent to 71.6 billion yuan by 2015. Mengniu gains the investment as food scandals including contaminated baby formula, rat meat sold as mutton, and excessive antibiotics in chicken have fuelled demand for better quality control in the world’s second-largest economy.

“The deal will help strengthen the research and development and capability of Mengniu’s yogurt business, and potentially help them increase market share in China,” said Charlie Chen, a Hong Kong-based analyst at BNP Paribas Securities Asia. “Through its ventures with Arla and Danone, Mengniu is also building a better brand image among consumers.”

Market Share Mengniu closed 10.4 per cent higher at HK$27.05 in Hong Kong trading, the biggest gain since April 14th, 2009. It formed a strategic partnership with Danish dairy firm Arla Foods in 2012 to improve quality inspection techniques and explore further co-operation.

Danone shares were little changed at €58.03 as of 12:16pm local time.

Yesterday’s agreement is the first partnership for the French company in China since the end of the one with Chinese drinks maker Hangzhou Wahaha Group in 2009, Agnes Berthet-d’Anthonay, a spokeswoman for Danone, said. – (Bloomberg)