Groupe Danone, also one of the world's leading food firms, will increase its stake in China's Bright Dairy & Food Co. to more than 20 percent to secure itself a larger stake in China's growing dairy market. It currently has a 9.7 percent stake in the Shanghai-listed company.

The French company's Asian unit signed agreements with S.I. Food Products Holdings Ltd and Shanghai Milk Group this week, Bright Dairy said in a statement to the Shanghai Stock Exchange yesterday.

According to the deals, Danone Asia Pte Ltd will pay 358 million yuan (US$44.7 million) for a combined 88.2 million shares in the two companies.

Danone is taking advantage of China's recent decision to allow overseas investors to buy strategic stakes, in common stock, in its public companies.

"The foreign dairy maker probably wants more shares in Bright Dairy as China's milk market is expanding rapidly," said Dong Junfeng, an analyst from Galaxy Securities.

Statistics show that dairy products sales climbed 38 percent to 86.3 billion yuan (US$10.77 billion) last year.

The market is expected to maintain a relatively high growth rate over the next 10 to 15 years.

With such healthy growth prospects, Danone isn't the only one rushing to team up with local dairy companies. Arla Foods, a Danish/Swedish co-operative, formed a joint venture with Mengniu Dairy last August; and New Zealand-based Fonterra Co-operative Group bought a 43 percent stake in Shijiazhuang's San Lu Group in December.

"Danone might also invest in other Chinese dairy firms as part of its business expansion here," Dong predicted.

According to an earlier report, Danone expects China's contribution to its global revenue to almost double to 15 percent by 2015.

It signed a deal to buy a 1.85 percent stake in Bright Dairy from Dazhong Transportation for 72.21 million yuan (US$9 million) last October, a deal that is still awaiting approval from the Ministry of Commerce.

When the share transfers in the latest deal are completed, S.I Food Products Holdings Ltd and Shanghai Milk Group will remain Bright's largest shareholders, each holding a 26.55 percent stake.

Danone, with a 20.01 percent stake, will be the third-largest shareholder.

On Monday, shares in Bright Dairy were suspended from trading pending approval of its plan to convert its non-tradable shares into common stock.

The company announced a plan yesterday about how it would reform its share structure.

Under the terms of the plan, the firm's non-tradable shareholders will offer 28.8 million shares and over 164 million yuan (US$20.4 million) in cash to compensate the holders of tradable shares for losses incurred from the increased supply of shares.

The reform plan still needs to be approved by the company's shareholders and related government authorities.

When Bright Dairy was last traded on April 7, shares jumped 9.9 percent to 5.64 yuan (US$0.70).

"Shares in the dairy sector have performed well this year due to great expectations in the industry and the overall good performance of the stock market," Dong from Galaxy Securities said.

Bright Dairy's stock in Shanghai has risen 28 percent this year, outpacing a 16 percent increase in the benchmark Shanghai Composite index.

(China Daily April 14, 2006)