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Danone to Increase Stake in Mengniu via Sale of the Dumex Business

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Published on : Jul 29, 2015

Danone will soon be utilizing the revenue generated by its Dumex China infant formula business to enhance its stake in China Mengniu Diary Company Ltd. For this, Danone had proposed the sale of the Dumex infant formula business to Mengniu. Recently, Danone declared that it had entered a certain preliminary contract pertaining to the sale of Dumex China, with Yashili, a China based dairy company. 

It is on the agenda of Danone and Yashili to carry out a collaboration in New Zealand with regard to setting up a manufacturing center in this region. Mengniu, is the 2nd largest diary in China which also holds the largest number of shares in Yashili, thereby having a control over its 51% stake. Danone, on the other hand holds 25 percent of the interest of the company. 

With the scare of Fonterra botulism, the China sale of Dumex had reached a challenging time in 2013. This took place when it was declared by Fonterra that a few batches of concentrates of whey protein had got contaminated and affected by Clostridium botulinum, and this had made an entry into the supply chain. After conducting tests it was observed that that particular contaminant was not toxic, in fact it was non-toxic version known as Clostridium sporogenes. This information reached the masses and the industry a little late in the day. However by then Dumex had withdrawn most of the infant formula in the markets of Laos, Thailand, Singapore, Hong Kong, Malaysia, and China. 

Such a step was basically taken by the company as a measure of precaution. By January 2014, Danone terminated the supply contract that it had with Fonterra and even took a legal action against it. Even though there was a positive environment, most products of Dumex did not fair very well in the market and the sale of the same remained quite low in the initial months of 2013.