COFCO, Mengniu and Danone join forces to accelerate the development of fresh dairy products in China

COFCO, the State-owned largest food company in China, has signed an agreement with Danone, pursuant to which the two parties will form a joint-venture. COFCO has agreed to sell 148,014,022 shares in China Mengniu (a Hong-Kong listed company) to the jointventure. COFCO and Danone will own 51% and 49% respectively in the newly formed company. After the transaction, COFCO will continue to be the single largest shareholder in Mengniu.

Danone will become a strategic shareholder in Mengniu, owning an indirect interest of approximately 4% at the initial stage, with an aim to increase the interest in Mengniu based on market conditions in the future.

In addition, Danone and Mengniu today signed a framework agreement to establish a jointventure for the production and sales of chilled yogurt products in China, combining their respective assets in this category for a total 2012 proforma net sales of about 500 million euros, with an estimate market share around 21% and 13 factories across China. This jointventure will benefit from the complementarity of Danone and Mengniu brands. It will achieve synergies by introducing Danone’s undisputed worldwide expertise in quality and product innovation, while fully leveraging Mengniu’s leadership and distribution capability in China’s yogurt category. Danone will own 20% and Mengniu 80% of the new joint-venture in China. Danone will assign experienced senior executives to join the top management team, assisting Mengniu to further upgrade its management capability.

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

“COFCO welcomes Danone. As the largest state owned company in the food sector, COFCO has the responsibility to further develop dairy products in China. I hope COFCO and Danone will take today’s cooperation in dairy sector as a starting point, and explore more cooperation opportunities in the future by leveraging respective advantages in marketing, channels, product and management, in order to jointly develop the Chinese market.” declared Frank Ning, Chairman of COFCO.

“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. Backed by COFCO’s extensive expertise in the Chinese food industry and by Mengniu’s nation-wide leading platform in the Dairy sector, our brands will benefit from significantly wider reach to the largest number of Chinese consumers”, said Franck Riboud, Danone Chairman and CEO.

“Following the successful international cooperation with one of the largest European dairy companies Arla Foods, Mengniu is very pleased to partner with the world’s leading Fresh Dairy company Danone, introducing its international expertise in product research and development, brand management and sales and marketing, which will strengthen our technical innovation capacity in the Fresh Dairy Product market and help us to deliver products of wider range and higher quality to consumers.” declared Elaine Sun, CEO of Mengniu.

COFCO’s and Mengniu’s strategic partnership with Arla Foods is unaffected by the agreement. “Arla welcomes Danone as Mengniu’s 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 Danone’s engagement in Mengniu will increase consumers’ trust in locally produced dairy products – for the benefit of all players in the Chinese dairy market,” says Executive Vice President in Arla Foods and member of Mengniu’s Board of Directors, Finn S. Hansen.

These transactions are subject to the approval of the relevant authorities and are expected to be finalized in the coming months.