Advertisement
Advertisement
Under the Danone agreement announced yesterday, Mengniu Dairy's stake in Yashili International will fall to 51.04 per cent from 68.05 per cent. Photo: Imaginechina

Danone's purchase of Yashili stake given cool market reception

Deal seen as move to revive China sales after infant milk powder scare

A unit of French food giant Danone is buying a 25 per cent stake in Chinese milk powder maker Yashili International for HK$4.39 billion to revive its mainland sales which suffered from the scare over raw milk powder supplied by New Zealand's Fonterra Cooperative Group.

However, Hong Kong-listed shares of the Chinese company fell as analysts reacted negatively to the news.

Danone Asia Baby Nutrition, the wholly owned Singapore unit of Danone, is buying 1.19 billion Yashili shares at HK$3.70 per share, according to a joint statement issued yesterday by Yashili and parent firm China Mengniu Dairy. Under the deal, Mengniu's stake in Yashili will drop to 51.04 per cent from 68.05 per cent.

Yashili's Hong Kong shares fell 9.15 per cent to finish at HK$2.88 yesterday, when trading resumed after being suspended on October 29. In contrast, shares of Mengniu Dairy rose 2.24 per cent to HK$34.25.

"The market is negative on whether the cooperation between Danone and Yashili will yield anything good," said Summer Wang, an analyst at Bocom International.

Mengniu and Yashili said they are also considering taking a minority stake in Dumex China, a Chinese subsidiary of Danone.

"Yashili intends to leverage its strategic partnership with Danone Asia and utilise the net proceeds from the share subscription to expand and strengthen its infant milk formula business, which may include strategic investments by Yashili," the firms said in a joint statement to the stock exchange.

"Yashili's share price dropped because the market suspects Yashili will have to spend a lot of money buying Dumex shares. One possible reason Danone paid so much for Yashili is Danone wants Yashili and Mengniu to invest in Dumex," said an equity analyst who declined to be named.

Dumex, one of Danone's infant milk formula brands, suffered from a product recall in reaction to fears of unsafe milk powder supplied by Fonterra last year, the analyst pointed out.

Yesterday, Fonterra was told by the New Zealand Ministry of Primary Industries that the Chinese government was lifting its suspension on the export of Fonterra base powder for infant formula (containing whey) and Fonterra whey powder to China, Fonterra said in a New Zealand Stock Exchange announcement. The suspension had been in place since August 2013.

Yashili is building a New Zealand factory to start operations in June next year, said Nicolas Wang, an analyst with Haitong International Securities. The factory will produce raw milk powder, which can partly replace Fonterra's previous supply of raw milk powder to Danone, he said.

This article appeared in the South China Morning Post print edition as: Danone's Yashili buy given cool reception
Post