China approves Danone dairy deal

- Last updated on GMT

Related tags: Bright dairy, People's republic of china, Milk, China

French dairy giant Danone has received approval from the Chinese
authorities to more than double its existing stake in China's
biggest dairy company, Tom Armitage reports.

Danone said in a statement that the Chinese Ministry of Commerce has given it permission to buy 60.9 million of Bright Dairy's shares from the Shanghai State-Owned Assets Operation and Dazhong Transportation - lifting its previous 3.85 per cent stake to 9.7.

China's Bright Dairy and Food Company, which currently holds the brand and technology licence agreement to manufacture Danone's products in China, notched up sales of US$712 million (CNY5.89 billion) in 2003 and the recent share acquisition will make Danone the company's third largest shareholder.

The company had been wanting to increase its holding in Bright Dairy for over two years and the agreement, in which it has paid the Shanghai government and Dazhong Transportation US14.6 million (CNY121 million) and US9.4million (CNY78 million) for their respective shares, will finally allow it to fulfil that ambition.

Danone already has a number of business interests in the Chinese market, stemming mainly from its bottled water and non-alcoholic drinks activities, which accounted for around 80 per cent of its US$1.1 billion sales in 2003.

Since the divestment of its Guangzhou and Shanghai Danone Yoghurt subsidiaries to Bright Dairy in late 2002 - a move which left it without any direct involvement in the Chinese dairy sector - the company has been gradually increasing its stake in some of China's leading food and beverage manufacturers.

It now, for instance, owns a 51 per cent stake in China's largest beverage manufacturer, Hangzhou Wahaha Group (something which has made it one of the country's biggest yoghurt manufacturers), as well as 60 and 92 per cent stakes in Shenzhen Health Drinks and beverage manufacturer Robust, respectively.

According to industry analysts Euromonitor International​, the milk sector in China has increased by an estimated 188 per cent over the last five years, with sales of UHT and long-life milk outstripping their fresh liquid milk alternatives by 680.1 per cent (the UHT and fresh milk categories each notched up respective growth rates of 753 and 72.9 per cent).

And with the Chinese population showing the lowest consumption of milk per capita in the world - an estimated two litres per year - there is massive potential for growth.

However, Euromonitor suggests that the high levels of investment in a nationwide distribution network is likely to slow the expected flood of foreign players and favour established local groups such as Bright - who are also likely to become attractive takeover targets.

Related topics: Manufacturers, Danone, Emerging Markets

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