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.
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 (U.S. 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 U.S. 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.
At 1145 GMT, Danone shares were up 2.8 percent at 54.2
euros, outperforming the broader European sector, which
gained 1.5 percent on the day.
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.
The CM-CIC Securities brokerage said in a note the deal was
"an excellent strategic opportunity" for Danone.
"Having secured its milk supply in China with Mengniu,
Danone is beefing up its infant formula division, which will
help it counter Nestle's ambitions," it said.
Danone, the world No. 2 in baby food, lost out to market
leader Nestle in a battle for U.S. drugmaker Pfizer's
baby food brands in 2012, which gave Nestle dominance of
emerging markets, including China.
Yashili specialises in infant milk formula products, making
it one of the better known brands in a market that Euromonitor
estimates will double in size against last year to hit $31
billion by 2017.
The French firm said it would pay HK$3.7 per share in a
private placement deal. Mengniu will see its holding diluted to
51.04 percent from 68.05 percent.
Mengniu bought Yashili in a deal worth about HK$12.5 billion
($1.6 billion) last year to expand its milk powder business.
Kepler Cheuvreux's Cox said the Yashili deal could also pave
the way for Mengniu to take a stake in Danone's Dumex business.
Danone holds around six percent of China's milk powder
market, according to Euromonitor, down from 10.2 percent in
2009. It lags rivals Nestle SA, Mead Johnson and local firms
Beingmate Baby & Child Food Co Ltd and Biostime
International Holdings Ltd.
Yashili's shares, suspended since Oct. 29, jumped 8.5
percent to hit a five-month high on Friday, before reversing
gains to trade down 9 percent at HK$2.88.
(1 US dollar = 0.7934 euro)
(1 US dollar = 7.7549 Hong Kong dollar)
(Additional reporting by Donny Kwok in Hong Kong; Editing by
Edwina Gibbs and Clara Ferreira Marques)
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