Danone finalizes sale of Mengniu stake, will expand presence

Food and beverage conglomerate Danone SA has finalized the sale of its approximate 9.8 percent stake in China Mengniu Dairy Co Ltd on Thursday as the French company concentrates its efforts on health-focused and fast-growth categories in the Chinese market.

The transaction is valued at HK$15.4 billion ($1.98 billion) and settlement of the transaction will take place on Monday. The majority of the proceeds will be returned to shareholders through a share buyback program, according to Danone.

"The deal will make Danone more laser-focused to develop what really matters to them in China," said Zhu Danpeng, a food and drink analyst based in Guangzhou. "Science and technology-driven products－those with sustainability and high profits－are what multinationals have prioritized in the country."

In 2013, Danone invested in two joint projects with China Mengniu Dairy to leverage Mengniu's large distribution network in tapping the high-end chilled yogurt market in the country.

Mengniu has also benefited from Danone's technology and knowhow in the frozen and chilled dairy products sector. However, eight years on, Mengniu's own yogurt business as well as infant and baby formula units have accelerated quickly, forming potential competition with Danone's special nutrition unit, Zhu said.

The move to sell stakes in Mengniu is in line with Danone's investment highlights－dairy and plant-based products, water and specialized nutrition goods.

Danone, which manages a series of leading international brands, including Aptamil, Evian and Nutricia, generated 23.6 billion euros ($28.5 billion) in global sales in 2020.

The updated commitment to the acceleration of its production and research capacities has shown the company's strong confidence in growth opportunities in the Chinese market.

Bruno Chevot, president of Danone Greater China & Oceania, said, "Over the next five years, Danone will push its strategy of 'innovated in China, made in China' to a higher level."

Leveraging local R&D and production capabilities, Danone will accelerate the transformation of cutting-edge research achievements into top-notch nutrition solutions produced locally to better serve Chinese consumers and contribute to the Healthy China 2030 initiative, he said.

Chevot added that in the coming five years, the company will build on its rich resources and vast experience accumulated in the nutrition and health industry over the years, as well as its health and consumer insights into the Chinese market, to fully tap the potential of its open science research center and Qingdao plant.

The company has invested 100 million euros in the launch of its Open Science Research Center for Life-transforming Nutrition in Shanghai last July, as part of its strategic investments in building an open, coordinated and inclusive innovation system through collaborating with public institutions, health and medical institutions and business partners and consumers.

Breast milk, intestinal health and food safety and quality are major subjects to be researched at the Shanghai center.

Danone has set up special nutrition production plants in Qingdao, Shandong province, and Wuxi, Jiangsu province, to drive up production.

"We plan to further diversify our range of offerings in China and bring more quality products 'innovated and made in China' to local consumers, thereby better catering to their upgraded nutrition needs," Chevot said.

China is Danone's second-largest market globally. In 2019, Danone's revenue generated in China contributed to nearly 10 percent of its global sales.

According to its first-quarter results, the China market has seen sales decrease at a steep double-digit rate. Despite the adult medical nutrition sector delivering strong growth, infant nutrition remained hard hit by COVID-related channel disruptions in the country with cross-border channel sales down around 45 percent.

Net sales of its water business were down 11.6 percent year-on-year on being severely impacted as consumer mobility remained below pre-COVID levels.

Its vitamin drink Mizone registered another quarter of growth in China.