Danone set to sue Wahaha over alleged contract breach

PUBLISHED : Wednesday, 11 April, 2007, 12:00am
UPDATED : Wednesday, 11 April, 2007, 12:00am

Yogurt maker accuses drinks firm after takeover bid fails

Groupe Danone, the world's biggest yogurt maker, said it is ready to take legal action against Hangzhou Wahaha Group, claiming that the mainland beverage maker breached a co-operation agreement by using other units to sell Wahaha brand products.

Danone's accusation was carried in a public letter to Sina.com yesterday after Wahaha chairman Zong Qinghou said on Sunday the company rejected its four billion yuan hostile takeover amid the government's increasing scrutiny on foreigners buying local assets.

Mr Zong, a representative of the National People's Congress, has the support of the company's staff, who said in a public announcement that Danone was 'eating up' a Chinese brand.

Wahaha's staff also said they had seen no contribution from Danone despite the large revenue from Wahaha's products. Requests for pay rises were always rejected, the announcement said.

Spokesmen for Danone and Wahaha could not be reached for comment.

Foreign firms are finding it increasingly difficult to gain control of mainland firms. One example is Carlyle Group's proposed acquisition of Xugong Group Construction Machinery.

Carlyle, a United States buyout fund, cut its planned purchase from 85 per cent to 50 per cent last year, and then to 45 per cent last month, but the deal is still pending final approval.

Arcelor Mittal, the world's largest steelmaker, is revising its purchase in Laiwu Steel after its initial proposal was turned down. France's SEB, the world's largest kitchen appliance maker, also faces objections from mainland competitors to its plan to buy 61 per cent of Supor Zhejiang Cookware.

Danone said that it remained in talks with Wahaha on 'some important issues', adding that '[the offer's rejection] is a strategy of Wahaha for negotiating better terms'.

Analysts said the agreement should be for Danone to buy 51 per cent of five joint ventures with Wahaha, instead of 51 per cent of the mainland company.

'We don't know what kind of assets Danone is considering buying,' an analyst said.

The contract terms between the two companies are not known.

Mr Zong told China Daily that Danone had invested 1.5 billion yuan in the ventures with Wahaha since 1996 and made a combined profit of 3.8 billion yuan.

Founded in 1988 in Zhejiang province, privately owned Wahaha Group is China's biggest beverage maker. The company has assets of 8.8 billion yuan and about 20,000 employees. Its pre-tax profit jumped 48 per cent to 3.2 billion last year.

Danone owns a 22 per cent stake in Hong Kong-listed China Huiyuan Juice Group, the nation's largest maker of pure fruit drinks. It also runs ventures with China Mengniu Dairy, the country's biggest liquid milk maker.

Danone's other investments include Shanghai's Bright Dairy & Food, Shenzhen Health Food, Guangdong Robust Group and Shanghai Aquarius Drinking Water Corp.