Danone Asia Pte Ltd has taken steps to end its 15-year relationship with China's Bright Dairy & Food Co by announcing plans to sell its 20 percent stake in the company for 934 million yuan (US$124 million), Bright Dairy said today.

 

The Asian unit of Groupe Danone SA, the world's largest yogurt maker, will transfer the equity at 4.58 yuan per share to Shanghai Dairy Group and S.I food Products Holdings Ltd, two shareholders in Bright Dairy, the Chinese company said in a statement filed with the Shanghai Stock Exchange today.

 

A licensing contract signed in 2001 that allows Bright Dairy to make and sell yogurt products under the Danone brand was also halted after Danone agreed to pay 330 million yuan in compensation.

 

The move came half year after Danone announced plans to let Inner Mongolia-based Mengniu Dairy Group, China's biggest liquid milk producer, produce its yogurt products as earlier proposals to further lift its stake in Bright were less likely to be approved by the Chinese partner.

 

Bright Dairy said in its statement that the cooperation suspension would damage its profitability in the short term but not reduce sales significantly.

 

Revenue generated by Danone-branded products made up for 4.2 percent of Bright Dairy's total income while contributing 11.2 percent to its overall net profits.

 

"Both parties may not be satisfied with the cooperation,'' said Ding Ping, analyst from Haitong Securities Co Ltd.

 

"Bright Dairy's expansion didn't meet Danone's expectation and Bright Dairy also failed to win solid support from Danone for its partnership with competitors in China.''

 

Bright Dairy is China's third largest dairy maker next to Mengniu and Yili Industrial Group.

 

It's first-half revenue increased 10.7 percent to 3.8 billion yuan while net profits climbed 7.8 percent to 101 million yuan.

 

Paris-based Danone has raised its stake in Bright Dairy three times to become its third biggest share holder as it aggressively eyes China's rapidly expanding yogurt market.

 

It also teamed up with China Mengniu to set up a joint venture to produce yogurt at the end of last year.

 

Danone's other domestic partners include Shenzhen Health Food Co, Huiyuan Juice Group Ltd, Shanghai Aquarius Drinking Water Corp and Wahaha Group.

 

(Shanghai Daily October 16, 2007)