Danone Prepares to Sell $1 Billion Stake in China’s Mengniu

(Bloomberg) — Danone is paving the way to sell its stake in China Mengniu Dairy Co. later this year by converting the investment into a direct holding.

The 9.8% stake is currently held indirectly and has a book value of 850 million euros ($1.03 billion), the world’s largest yogurt-maker said in statement Sunday. The majority of the proceeds will be returned to shareholders through a share buyback program.

China Mengniu shares climbed as much as 3.4% early Monday amid a broader market rally in Hong Kong.

Danone started a strategic review in October, when it also announced plans to sell smaller businesses such as the Vega protein-powder brand and Argentinian operations. Chief Executive Officer Emmanuel Faber also said earlier this month that Danone will divest assets that don’t contribute to profitable growth.

Faber is under scrutiny after the stock lost a quarter of its value last year, and has faced increasing pressure from investors. Artisan Partners Asset Management Inc. and Bluebell Capital Partners have called on the company to replace him in order to ensure change and improved performance.

“Today’s announcement is an example of our commitment to deliver portfolio optimization and improve returns to shareholders through disciplined capital allocation,” Chief Financial Officer Juergen Esser said in an emailed statement.

Danone first took a stake in Mengniu in 2013, and said that China will remain highly strategic for the company following the sale.

The conversion process is subject to regulatory approval and the divestiture could take place in one or several transactions, depending on market conditions, the company said.

The stake contributed 57 million euros to Danone’s recurring income from associates in 2019.

Mengniu said in a statement it respects Danone’s decision and the move won’t affect its business strategies and plans. The planned sale of shares, which are indirectly owned by Danone and COFCO Corp., Mengniu’s biggest shareholder, will cut COFCO’s holding to 21.43% from the current 31.25%.

The Chinese dairy-maker is expected to post a 17% profit decline for 2020 amid the pandemic’s disruption of the supply chain and logistics, after reporting profit growth of more than 30% in both 2018 and 2019.

Contact editor Yang Ge (geyang@caixin.com)

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