Danone to buy a 25% in Chinese milk powder maker Yashili for $550 mn

Danone SA today said that it will buy a 25-per cent stake in Chinese milk powder maker Yashili International Holdings Ltd for €437 million ($550 million) as the French dairy giant looks to expand in the Chinese infant formula market.

The 25-per cent stake purchase comes less than eight months after Danone more than doubled its stake in China Mengniu Dairy Co from 4 per cent to 9.9 per cent, for around $665 million. (See: Danone buys 5.9% stake in China Mengniu Dairy for $665 mn)

Under the deal, Danone will subscribe to a private placement by Yashili at HK$3.70 per share, and upon completion of the subscription, Mengniu, currently Yashili's majority shareholder, will hold a 51-per cent stake and Danone 25 per cent.

Through this deal, Danone, Mengniu and Yashili plan to expand and strengthen their cooperation in the infant milk formula business in the China and study the possibility of buying a minority stake in Danone's subsidiary Dumex China.

Emmanuel Faber, Danone CEO, said, ''Building on our successful cooperation in fresh dairy products, we are today strengthening the winning team formed by Danone and Mengniu by acquiring an equity stake in Yashili - combining Mengniu's wide-reaching network in China with Danone's international expertise in infant milk products.''

Elaine Sun, CEO of Mengniu and chairman of Yashili, said, ''I am very pleased with this new agreement with Danone, which will facilitate Yashili's expansion in the promising Chinese market for infant milk formula and create new opportunities for the future, offering consumers a wider choice of products that are safe, healthy and of the very highest quality.''

Founded in 1983 and acquired by Mengniu in 2013, Yashili specialises in manufacturing nutritious food and now has infant milk formula as its core product.

The company has four domestic production sites in Chaozhou City, Guangzhou City, Qiqihar City, and Shuozhou City. The company is currently building an infant milk powder plant in Waikato, New Zealand.

Formed through the 1972 merger between Gervais Danone and BSN, Danone is the third-largest infant milk maker in China and its baby nutrition unit makes more than 20 per cent of its overall sales from China.

Danone last year reduced prices for its products by as much as 20 per cent after the Paris-based company was fined 172 million yuan by China's regulator for fixing milk-powder prices.

Citing an unidentified former sales manager, state-run China Central Television last month alleged that Dumex paid doctors and hospital staff in several Chinese provinces to sell its products.