Danone bolsters China presence with $550m deal

Yashili milk formula products at an expo in Beijing. [Photo / Provided to China Daily]

France's Danone, battling local rivals for a larger share of China's booming baby milk market, has invested $550 million in formula maker Yashili International Holdings, further reducing its dependence on slow growth Europe.

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The deal strengthens Danone's ties with China's top dairy firm -- Yashili's largest investor and comes as the French firm's key Dumex baby nutrition brand seeks to win back consumers after accusations of high prices, bribery and tainted milk scares last year.

The 25 percent stake purchase is also the first major investment since Danone split its chairman's dual roles in September, handing the CEO job to Emmanuel Faber.

Kepler Cheuvreux analyst Jon Cox said the deal "made sense" and limited the chances of a large value-destroying deal in the short term: "It reduces the chance of big bang M&A, say involving (US firm) Mead Johnson, which the market was concerned about."

Sources familiar with the matter told Reuters earlier this month that Danone wanted to pursue a takeover of US formula maker Mead Johnson Nutrition Group.

Analysts have also speculated Danone might sell its Medical Nutrition business and push deeper into markets like China and Africa with acquisitions.

China push

China is Danone's fourth-largest market, accounting for around 7 percent of its group sales.

But global dairy firms such as Danone, traditionally dominant in the lucrative premium end of the milk powder sector, are having to fend off increasingly savvy local brands. Beijing is also pushing consolidation to strengthen domestic players.

Acquiring the stake in Yashili strengthens Danone's links to the Chinese firm's largest shareholder and the country's biggest dairy firm, China Mengniu Dairy Co Ltd, whose stake will be diluted as a result of the deal. Danone owns a stake of around 10 percent in Mengniu, according to a February statement.