Lawsuit threat bugs Danone even before Wahaha row wanes

PUBLISHED : Tuesday, 19 June, 2007, 12:00am
UPDATED : Tuesday, 19 June, 2007, 12:00am

Conflicts arising from Groupe Danone's stake ownership deals with rival mainland companies are increasingly becoming a headache for the firm, with a shareholder of one local partners - Bright Dairy - threatening it with a lawsuit.

At the same time, another collaborator, Hangzhou Wahaha Group, said its application to take the French firm to the Hangzhou Arbitration Commission had been accepted.

Beijing consultant Li Su, a shareholder of Bright Dairy, has recruited lawyers to take Danone to court over its alleged misuse of its position as a major shareholder in many rival mainland companies to the detriment of other investors, according to his spokesperson.

Danone, the world's largest yogurt maker, has a 20.1 per cent stake in Bright Dairy and a 49 per cent holding in a joint venture with China Mengniu Dairy, the country's largest milk products maker. It also has stakes in many other mainland food and beverage firms.

The lawsuit threat comes two weeks after Danone's dispute began with partner Wahaha, the mainland's largest beverage company, threatening the French food giant's strategy of gaining mainland exposure through a string of rival ventures.

A combination of notable partnership blow-ups in the mainland over the past decade and Beijing's relaxing of foreign ownership rules have encouraged many international firms, including Starbucks Corp, to buy out their local partners or set up their own operations.

Wahaha yesterday said it had been notified that an arbitration court in its home city of Hangzhou on Thursday would hear its claims that the contract it signed granting Danone control over the well-known brand name was never approved by the mainland's trademark authority and should therefore be invalidated.

Danone earlier this month sued Wahaha in the United States and Sweden, claiming that Wahaha used the joint ventures' distributors and suppliers to illicitly produce and sell its own fruit juice and mineral water under the brand name.

Danone, which owns 51 per cent stakes in various Wahaha brand drink joint ventures and a 24 per cent stake in Huiyuan Juice, said it was losing US$25 million a month from unlawful sales, said documents filed in Los Angeles Superior Court where it is seeking at least US$100 million in damages.

Wahaha founder Zong Qinghou has publicly complained that Danone was limiting the way his company could develop - citing his desire to produce milk drinks - to prevent it from undercutting the French firm's other mainland assets.

At a seminar in Beijing on Friday, Mr Li said Danone 'breached business principles and cheated the big brands in China', a transcript of the speech showed.

Mr Li, who has not disclosed his holding in Bright Dairy, is chief executive of H&J Vanguard and a special researcher for the Chinese Academy for Social Sciences.

The spokesperson said the lawyers Mr Li had appointed were studying the legal grounds for filing a suit.