Danone began a process to sell Dumex to the Chinese manufacturer in July, prompted by an alarming and sustained drop in fortunes for its local flagship infant nutrition business.
In 2012, the infant formula unit was placed second in China’s ultra-competitive baby food market with RMB5.7bn (US$890m) in sales.
This figure fell to RMB1.3bn the following year after Dumex’s reputation was badly damaged by turned out to be an unfounded food safety scare and a RMB171.9m fine for price fixing.
Over that period, the company saw a net profit of RMB765m transform into a RMB771m loss.
"By bringing the Dumex and Yashili brands closer together, the operation will build a strong local infant milk formula brand platform," Danone said in a statement following the completion of the deal, which is now subject to the approval of the relevant authorities and of Yashili shareholders.
State-owned Mengniu owns roughly 50% of Yashili, while Danone holds a 25% stake.
China's infant milk formula market has grown from RMB21.3bn (US$3.3bn) in 2010 to RMB55.3bn this year, and is forecast to increase its size to 94.9bn by 2018, according to Euromonitor figures.
Last year, Nestlé occupied top position in terms of market share with 8.6%. Now ranked twelfth, Dumex possesses just 2.9% of the market so far this year, with its share continuing to drop in a Country that is seeing a fast growth in demand for foreign-made brands and online sales.