Chinese infant formula maker, Yashili International Group Ltd., announced it has completed a deal to buy Danone SA’s infant formula unit, Dumex China, for US$159 million, according to Reuters.

 

Danone has been involved in negotiations with Yashili regarding the deal since July, after the unit had been seriously damaged by what turned out to be an unsupported food safety scandal, and then later again, after sustaining a Chinese fine of RMB171.9 million (US$26.85 million) for price fixing.

 

In 2012, Dumex ranked second in China’s crowded infant formula market with sales totaling RMB5.7 billion (US$890 million). However, within just one year, sales for the unit fell to RMB 1.3 billion (US$203 million) as a result of the damaged sustained to its reputation. The unit also saw its net profits of RMB765 million (US$119.5 million) plummet to a loss of RMB771 million (US$120.4 million), while its market share fell to just 2.9% this year, according to reports by Food Navigator-Asia.

 

In 2010, the Chinese infant formula market was worth RMB21.3 billion (US$3.3 billion), but has soared to a value of RMB55.3 billion (US$8.64 billion) this year according to data from Euromonitor, reports Food Navigator. This growth, combined with measures taken by the Chinese government to foster the modernization of its dairy and infant formula industries, has resulted in a flurry of consolidation.

 

"By bringing the Dumex and Yashili brands closer together, the operation will build a strong local infant milk formula (IMF) brand platform," Danone said in a statement on Wednesday, confirming completion of the deal.

 

China’s state-owned Mengniu owns approximately 50% of Yashili, while Danone owns 25% of the business.