Danone yesterday signed a agreement with Yashili and its majority shareholder, Mengniu, to purchase 1.186bn newly issued shares in Yashili at a price of HK$3.70 (US$0.48, €0.38) a piece.
The deal, which is subject to the approval of Yashili shareholders and Chinese authorities, will see Danone control a quarter of all shares in Yashili.
Mengniu's shareholding will as a result fall from 68% to 51%.
In a Hong Kong Stock Exchange filing, Yashili and Mengniu said the proceeds of the deal will be used to “expand and strengthen” Yashili's position in the Chinese infant formula market.
This, the filing said, may include "strategic investments by Yashili with a view to enhancing Yashili's technology, brand, production capacity, and distribution channels."
A minority investment by Yashili in Dumex China, a Danone subsidiary, will also be considered.
“I am very pleased with this new agreement with Danone, which will facilitate Yashili’s expansion in the promising Chinese market for infant milk formula and create new opportunities for the future, offering consumers a wide choice of products that are safe, healthy and of the very highest quality,” said Elaine Sun, Mengniu CEO and Yashili chairman.
The deal expands the scope of Danone and Mengniu's existing strategic alliance in China to infant formula.
In May 2013, Danone secured a 4% stake in Mengniu through an agreement with the Chinese dairy's majority shareholder, COFCO. A joint venture was also established by the duo with a focus on fresh dairy products.
Danone has since increased its interest in Mengniu from 4% to 9.9%.
“Building on our successful cooperation in fresh dairy products, we are today strengthening the winning team formed by Danone and Mengniu by acquiring an equity stake in Yashili – combining Mengniu’s wide-reaching network in China with Danone’s international expertise in infant milk products. I am delighted with this transaction and am confident in our ability to grow all of our brands in the Chinese market,” said Emmanuel Faber, CEO, Danone.