Danone whets appetite for China dairy with bigger Mengniu stake
Danone will more than double its stake in China’s leading dairy company in a move aimed at bolstering the Chinese group’s image in a country obsessed by food safety concerns.
The French group bought 4 per cent of China Mengniu, China’s largest milk producer, last May when the two companies set up a joint venture to produce and sell chilled yogurt products in the Asian country. Now Danone will spend €486m ($662m) to raise that stake to 9.9 per cent.
Mengniu said in a statement to the Hong Kong stock exchange on Wednesday that Danone’s stake would be combined with the holdings of Cofco, China’s largest state-owned food group, and Denmark’s Arla Foods, in a jointly owned group called Cofco Dairy Investments.
Mengniu said the increased Danone stake was a response to the rapid rise in the dairy industry in China, which Mengniu said had nearly doubled from $20bn in 2008 to $40bn last year.
The Chinese company said it expected to see continued growth over the next five years as dairy products increase in popularity in the country against a backdrop of rapid urbanisation.
The two groups said last May that their combined share of the yogurt market in China was 21 per cent.
“It looks like the partnership is working out well,” said Benjamin Cavender of China Market Research in Shanghai. “For Danone, the stronger tie-up with Mengniu can potentially help them with more aggressive distribution of their products into more cities and onto more store shelves. . .and it helps Mengniu to build the perception that they are working closely with international companies that have high food safety standards and controls.”
More than five years after melamine-tainted baby formula sickened hundreds of thousands of infants in 2008, Chinese consumers remain wary of local dairy brands and are willing to pay a premium for infant formula manufactured overseas or under the oversight of foreign companies.
“As consumers become increasingly concerned about food safety and also more health conscious and concerned about the nutritional quality of the foods they are buying, this should help to position both companies for continued growth in China’s yogurt market,” said Mr Cavender.
The deal is subject to the approval of Mengniu’s shareholders.