Danone is set to increase its interest in Chinese dairy manufacturer Mengniu to almost 10% in its latest bid to capitalize on the "high growth potential" of the country's chilled dairy products market.
The Paris-based dairy giant announced earlier today that through an investment of €486m ($660m) its stake in Mengniu, China’s third largest dairy processor, will increase from 4% to 9.9%.
The purchase will make Danone the second largest shareholder in Mengniu and builds on the May 2013 deal with COFCO, China’s largest state-owned food company, that saw it acquire its original 4% shareholding.
Subject to the approval of Mengniu shareholders, Danone expects to finalize the deal in the next few months.
In line with Danone's latest share purchase, Mengniu shareholders COFCO, Danone, and Arla Foods plan to combine their respective 16.3%, 9.9% and 5.3% stakes within COFCO Dairy Investments, a jointly-owned company.
“This transaction is consistent with Danone’s strategy to increase our interest in and join hands with Mengniu to capture the high growth potential of the chilled dairy products market in China," said Danone chairman and CEO, Franck Riboud, in a statement.
"The alliance represents the winning combination to unlock this potential and develop healthy and tasty products, spreading Danone brands to millions of Chinese consumers,” he said.
"Catalyst" for consolidation
In a separate statement, Hong Kong-based Mengniu said that the deal will enhance its "leading position in the dairy industry."
The company intends to use the proceeds of the deal to repay a loan connected with its recent acquisition of Chinese infant formula manufacturer Yashili International and other corporate debt.
“By leveraging the strengths of our three strategic shareholders, Mengniu will be better positioned to capitalize on future opportunities and realize its vision of ‘becoming the most professional and dedicated dairy products manufacturer known for the best product quality and safety',” said Mengniu CEO, Elaine Sun Yiping.
COFCO has shown its support for the deal, which it says provides a “catalyst for consolidating the equity of Mengniu’s key shareholders.”
“The restructuring of the shareholdings of COFCO, Danone and Arla Foods in Mengniu would align our interests with those of Mengniu, further enhancing its leading market position in China’s dairy industry,” said COFCO chairman, Frank Ning Gaoning.
Arla Foods also welcomed the deal, adding that its June 2012 strategic partnership with Mengniu will be “unaffected.”
“Arla Foods is pleased to stay more closely with our partners COFCO and Danone under the same joint venture framework,” said Finn Hansen, executive vice president of Arla Foods and non-executive director of Mengniu.
"We will continue to work closely with Mengniu on a number of initiatives at the China-Denmark Milk Technology and Cooperation Center in Beijing," Hansen added.