Danone plans to divest stake in Chinese dairy firm Mengniu

Global food company Danone has unveiled its plans to divest its 9.8% indirect stake in the China Mengniu Dairy Company (Mengniu) by converting it into a direct holding.

Danone said that its indirect stake has a book value of nearly €850m ($1.02bn).

The move is part of Danone’s ongoing portfolio review process. The company has reached an agreement with COFCO Dairy Investments (CDI) to convert its stake in Mengniu.

With a current market capitalisation of nearly €18bn ($21.7bn), Hong Kong Stock Exchange-listed firm Mengniu manufactures and distributes dairy products.

In 2013, Danone became a shareholder of the Chinese firm.

The conversion of the indirect stake is subject to the approval of the regulatory authorities.

Upon completion of the transaction, Danone will own a 9.8% direct holding in Mengniu, which Danone may divest this year in one or more transactions based on market conditions.

Danone said that the proceeds from the divesture will be returned to shareholders through a share buyback programme.

The company further added that China remains a highly strategic market for Danone.

Last July, Danone announced a series of investments to strengthen market capabilities and support its specialised nutrition business in China.

As part of this, the company announced its intention to invest €100m for the opening of an open-science research centre in Shanghai and acquire local infant milk formula capabilities.

The investment was also allocated to enhance the firm’s capacity to further develop offerings in food for special medical purposes (FSMP).