Danone coy on Wahaha merger talks

By Neil Merrett

- Last updated on GMT

Related tags: Danone, Mergers and acquisitions

Danone remains tight-lipped over reports that it hopes to merge a
number of rival companies run by the founder of its Chinese joint
venture partner Wahaha into its own operations in the country.

Company spokesperson Micheal Chu told DairyReporter.com that he was unable to detail the nature of ongoing negotiations with Wahaha, despite a Dow Jones report citing Danone representatives claiming a deal was in the works. The preferred option for the France-based dairy group would be to merge Wahaha founder Zong Qinghou's other companies, which allegedly were illegally producing rivals products to those of the joint venture, with their own, the report said. If the merger went ahead, it would serve to strengthen the group's Chinese beverage and dairy operations. Such a move would also signal a major turnaround in relations between Danone and Wahaha since 21 December, when both groups agreed to end hostilities, including various legal proceedings, over allegations that Wahaha's founder had broken an agreement in the deal. "The long-running disputes centre around the joint venture's ownership of the Wahaha trademark and Danone's allegations that Zong had been illegally selling products identical to those sold by the companies' joint ventures,"​ Danone stated. However, the company said back in December, that following pressure from the Chinese and French governments, both itself and Wahaha had temporarily suspended all lawsuits against each other to negotiate peace talks instead. "Both parties will work together to further develop all entities operating under the Wahaha brands and contribute to develop the Sino-French friendship and promote the co operation between the companies of the two countries​," Danone stated at the time. Danone, like a number of dairy processors, has in recent years moved to step up its presence in high growth markets such as Asia, Latin America and Eastern Europe. However, the strategy has not been entirely without risk for Danone during the last year. In June 2007, the Indian government informed Danone that it needed permission from local partner the Wadia group before it could sell its brands separately within the country. The government referred to Press Note 1, a piece of legislation relating to foreign companies that work with an Indian group in a joint venture. Foreign operators must get permission before operating independently, according to the Business Standard. The decision came on top of a number of disagreements between the two parties over Danone's investment in local nutraceuticals company, Avesthagen, and some royalty payments relating to other ventures.

Related topics: Manufacturers, Danone, Consolidation

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