CHINA – French multinational food group Danone is in the process to cut ties with China Mengniu Dairy after nine -years by selling a 25 percent stake it holds in milk powder maker Yashili as well as a 20 percent joint venture participation.
At the same time, Danone is buying back all shares (100%) of Dumex Baby Food, which it sold to Mengniu’s unit Yashili International Group in 2016 in order to further expand its ability to locally manufacture Infant Milk Formula products.
According to Mengniu, Dumex’s shares are worth about US$130.5 million while the joint venture is worth US$2.4 million, and the transactions are set to be complete this year to be the earliest.
” The proposed transactions are not required to close simultaneously. Subject to the satisfaction or waiver of the conditions of each of the proposed transactions, it is expected that the earliest closing could take place this year,” Danone said in a statement.
Once the deal is completed, Yashili will become a wholly-owned subsidiary of Mengniu and its Shares on the Stock Exchange will be withdrawn, making it private.
However, the transaction is a connected transaction of Mengniu by reason of Danone Nutrition being a connected person of Mengniu at the subsidiary level but will not affect the long-term strategy of Mengniu.
Instead, it will help Mengniu optimize resource allocation and increase management efficiency, the Chinese dairy giant said.
The French multinational last year already shed its 9.8% minority stake in Mengniu, worth $2 billion, and pledged to distribute the proceeds to investors as it came under pressure to boost its shareholder value.
This shedding led to cooperation’s synergistic effect weakening with the development and changes in the pair’s businesses according to a dairy industry analyst statement to Yicai Global.
The pair’s partnership started in 2013 when Danone bought a 4 percent stake in the Hohhot-based dairy firm and in 2014, Danone, COFCO, and Denmark’s Arla Foods formed COFCO Dairy Investments as a Joint venture entity.
The three companies owned 9.8 percent, 16.3 percent, and 5.3 percent, respectively, in Mengniu through the JV. Additionally, Danone acquired the stake in Yashili, a company controlled by Mengniu in 2014 as it sought to expand its presence in China’s billion-dollar milk market in a deal worth $550 million.
The unwinding of the existing Mengniu-Danone relationships comes shortly after a soaring net profit of44 percent to US$ 749.3 million from 2020 attributed to rapid growth in its high-end milk business, as Per its financial report.
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