May 20, 2021

By Lynda Kiernan, Global AgInvesting Media

Food and beverage giant Danone SA has finalized the sale of its 9.8 percent stake in China Mengniu Dairy Co., a leading Chinese manufacturer and distributor of dairy products, in a deal valued at $1.98 billion based on Mengniu Dairy’s market capitalization of approximately 166 billion Hong Kong dollars ($21.4 billion).

The relationship between Danone and China Mengniu began in May 2013 when the two companies partnered to invest in a joint venture with China’s state-owned COFCO that would capitalize upon Mengniu’s vast distribution network, giving Danone access to China’s high-end chilled yogurt market.

The following year, Paris-based Danone more than doubled its stake in China Mengniu, from 4 percent to 9.8 percent, paying $663 million at the time, giving Danone greater weight in the deal. At the time, this move served another underlying purpose in gaining Danone a way to regain confidence among Chinese consumers after its supplier, Fonterra, suffered a contamination scare the previous summer. 

Over the years, Mengniu Dairy has also benefited due to its tie-in with Danone’s technology and experience in regard to chilled and frozen dairy products – and Mengniu has learned well. Its own yogurt and infant formula businesses have taken off, evolving into a market rival for its partner, Danone.

This deal will allow Danone, which controls a number of global brands including Aptamil, Evian, and Nutricia that generated global sales last year of $28.5 billion, to now more fully focus on its own rapidly-growing business in China. 

“The deal will make Danone more laser-focused to develop what really matters to them in China,” Zhu Danpeng, a food and drink analyst based in Guangzhou, told China Daily. “Science and technology-driven products－those with sustainability and high profits－are what multinationals have prioritized in the country.”

As has Danone. In July 2020 the company invested EUR100 million (US$122 million) to launch its Open Science Research Center for Life Transforming Nutrition in Shanghai, in line with its strategic plan to grow an inclusive and innovative ecosystem through collaboration with medical and academic institutions, business partners, and consumers in China with a focus on breast milk research and gastrointestinal health.

The center also will conduct projects that apply data-driven insights and digital tools to these fields, and will carry out R&D initiatives that advance food safety and food quality in China. 

“Over the next five years, Danone will push its strategy of ‘innovated in China, made in China’ to a higher level,” said Bruno Chevot, president, Danone Greater China and Oceania. 

– Lynda Kiernan is editor with GAI Media, and is managing editor and daily contributor for Global AgInvesting’s AgInvesting Weekly News and  Agtech Intel News, as well as HighQuest Group’s Oilseed & Grain News. She can be reached at lkiernan@globalaginvesting.com.