Danone buys 5.9% stake in China Mengniu Dairy for $665 mn

French diary major Danone yesterday agreed to more than double its stake in China Mengniu Dairy Co from 4 per cent to 9.9 per cent, for around $665 million in a bid to become the second-biggest investor in China's largest milk producer.

Hong-Kong listed Mengniu Dairy will issue 121.24 million shares, or 6.2 per cent of its enlarged share capital, to a venture between Danone and China's state-owned COFCO at HK$42.5 per share (Rs340.46).

Mengniu Dairy said that it will use the proceeds from the sale to repay the remaining loan it had raised for the acquisition of Yashili International Holdings and for other corporate debt.

After the share sale, COFCO, Danone and Arla Foods, Mengniu's three largest shareholders, will hold 16.3 per cent, 9.9 per cent and 5.3 per cent respectively in Mengniu Dairy.

All three shareholders have agreed to restructure their shareholding such that their combined shareholding of 31.5 per cent will be held by the joint venture company, COFCO Dairy Investments, which will represent their mutual interests.

Arla Foods is an international dairy company owned by 12,000 farmers from Denmark, Sweden, the UK, Germany, Belgium and Luxemburg. It has a wide range of dairy products and has annual turnover of €10 billion.

Arla Foods is also the world's largest manufacturer of organic products.

COFCO Dairy Investments is a joint venture formed last year between Chinese state-owned COFCO, the country's largest food company and Danone, the world's largest yogurt maker.

''This transaction is consistent with Danone's strategy to increase our interest in and join hands with Mengniu to capture the huge growth potential of the chilled dairy products market in China. The alliance represents the winning combination to unlock this potential and develop healthy and tasty products, spreading Danone brands to millions of Chinese consumers,'' said Franck Riboud, chairman and CEO of Danone.

Elaine Sun Yiping, CEO of Mengniu Diary, said, ''Mengniu welcomes Danone's step to become its second largest shareholder. We are very grateful for the support that our three strategic shareholders, COCFO, Danone and Arla Foods, have provided to Mengniu over the years.''

Last year Danone and Mengniu Diary had formed a 20:80 per cent JV for the production and sale of chilled yogurt products in China by combining their 13 plants across the country.

Both companies hold a combined 21 per cent market share and had 2012 sales of around €500 million in the chilled yogurt products business.