COFCO, the state-owned food company in China, has signed an agreement with Danone, under which the two parties will establish a joint venture. As part of the agreement, COFCO will sell 148,014,022 shares in China Mengniu to the joint-venture.
Under the terms of the agreement, COFCO and Danone will own 51% and 49% stakes respectively in the new company. Following the transaction, COFCO will continue to be the single largest shareholder in Mengniu with 27.83% stake.
COFCO chairman Frank Ning said, "I hope COFCO and Danone will take today's cooperation in dairy sector as a starting point, and explore more cooperation opportunities in the future by leveraging respective advantages in marketing, channel, product and management, in order to jointly develop the Chinese market."
Danone will own an indirect stake of about 4% in Mengniu, with an aim to increase the interest in Mengniu based on market conditions in the future.
In addition, Danone and Mengniu entered into a separate framework agreement to set up a joint venture for the production and sales of chilled yogurt products in China.
Under the deal, the two parties will combine their respective assets in the category for a total 2012 proforma net sales of about €500m, with an estimate market share of around 21% and 13 facilities across China.
Danone will own 20% and Mengniu 80% of the new joint-venture in China.
The joint venture will benefit from the complementarity of Danone and Mengniu brands. It will achieve synergies by introducing Danone's worldwide expertise in quality and product innovation, while leveraging Mengniu's leadership and distribution capability in China's yogurt category.
Danone will invest approximately €325m as a result of the two cooperation projects.
Danone Chairman and CEO Franck Riboud said joining the strengths of Danone, COFCO and Mengniu will create the winning combination to unlock the potential of the Fresh Dairy Products category in China.
"Backed by COFCO's extensive expertise in the Chinese food industry and by Mengniu's nation-wide leading platform in the Dairy sector, our brands will benefit from significantly wider reach to the largest number of Chinese consumers," Riboud added.
The transactions are subject to the approval of the relevant authorities and are expected to be finalized in the coming months.
