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Danone to buy bigger stake in Mengniu
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French food company Danone said it will spend US$665 million to increase its stake in China’s largest dairy firm Mengniu Dairy Co as foreign companies are betting on higher demand for quality food and dairy products in the country.
Danone will purchase 121.2 million new shares of Mengniu through a joint venture with China’s COFCO Group and Denmark’s Arla Foods, a joint statement by the two companies said yesterday.
Shares of Mengniu jumped 2.99 percent to HK$37.95 (US$4.89) yesterday in Hong Kong.
Danone will pay HK$42.50 for each new Mengniu share, a 15.3 percent premium over Mengniu’s closing price on Tuesday. The purchase will raise its stake in Mengniu from 4 percent to about 9.9 percent.
The deal is subject to the approval of Mengniu’s shareholders, and is expected to be completed within a few months.
Mengniu said in the statement that the deal will strengthen its partnership with Danone and put it in a better position to capitalize on other opportunities.
Mengniu will use the funds to repay debts and strengthen its balance sheet.
“Through the collaboration with Mengniu, Danone could speed up the expansion of its yogurt business and also boost its milk powder business,” said Song Liang, a senior analyst at market research firm China Commercial Distribution Promotion Center.
Danone spent 2.6 billion yuan (US$429 million) to purchase a 4 percent stake in Mengniu and establish a joint venture with the company last year.
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