Danone Invests 325M to Speed Development of Dairy Sector in China

PARISDanone announced it will invest approximately 325 million in partnerships to strengthen and accelerated the development of fresh dairy products in China.

Danone signed a joint venture agreement with COFCO, the state-owned largest food company in China. COFCO will sell 148,014,022 shares in China Mengniu Dairy Company to the joint ventureCOFCO and Danone will own 51% and 49% respectively in the newly formed company. Danone will become a strategic shareholder in Mengniu, owning an indirect interest of approximately 4% at the initial stage, with the goal to increase the interest in Mengniu based on market conditions in the future.

Danone and Mengniu also signed a framework agreement to establish a joint venture for the production and sales of chilled yogurt products in China, combining their respective assets in this category for a total 2012 pro forma net sales of about 500 million, with an estimate market share around 21% and 13 factories across China.

Danone will own 20% and Mengniu 80% of the new joint venture in China. The partnership will achieve synergies by introducing Danones expertise in quality and product innovation, while leveraging Mengnius leadership and distribution capability in Chinas yogurt category.

Danone will invest approximately 325 million as a result of the two projects. The cooperation will help Mengniu to leverage Danones leading product innovation and management capability in the Fresh Dairy category. Danones BIO (Activia) brand will put the new fresh dairy business in a solid position to build its strong leadership in the active health sector.

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," said Franck Riboud, Danone Chairman and CEO. Backed by COFCOs extensive expertise in the Chinese food industry and by Mengnius nationwide leading platform in the dairy sector, our brands will benefit from significantly wider reach to the largest number of Chinese consumers."

Mengniu recently signed a international partnership with Arla Foods; however, this partnership is unaffected by the agreement. COFCOs and Mengnius strategic partnership with Arla Foods is unaffected by the agreement.

Arla welcomes Danone as Mengnius partner in the locally produced chilled yogurt category. Together with our ongoing initiatives in the Arla/Mengniu milk technology center in Beijing, we are confident that Danones engagement in Mengniu will increase consumers trust in locally produced dairy products - for the benefit of all players in the Chinese dairy market," said Finn S. Hansen, executive vice president of Arla Foods and member of Mengnius board of directors.

Earlier this month, Danone signed an agreement to acquire more than 90% equity interest in New York-based Happy Family, the fourth largest maker of baby food in the United States. The strategic alliance will raise the bar for childrens nutrition in the United States by combining both companies shared commitment to social responsibility and innovation.