Danone faces crisis in China

Even as Groupe Danone tries to sort out issues with the Mumbai-based business house the Wadia Group, the French company is dealing with a similar crisis in another Asian market, China. According to news agency reports, the French food giant is prepared to take legal action if necessary against Wahaha, its Chinese partner and the country's biggest beverage producer, for what it said was breach of contract.

Danone said Wahaha had violated a 1996 joint venture contract by using the well-known Wahaha brand. Wahaha on the other hand has refused to sell the competing businesses to Danone and said that it wants to modify the 'unfair' agreement with the French company.

"We are still aiming to solve the issue through negotiations. However, we are prepared to take legal action in order to protect the rightful interests of our shareholders," Shanghai-based spokesman for Danone told Reuters. The scenario is similar to the struggle for control of biscuit maker Britannia in India where Danone and the Wadia Group have an equal stake in the bakery products company through a holding company Associated Biscuits International Holdings.

The two are also equal stake holders in another company, Wadia BSN which was set up to launch food brands from Danone's global portfolio in India. Over the last few months, the trouble between the two partners came out in the open with Britannia declining to share its quarterly performance numbers with Danone.

There is also a conflict between the partners regarding Danone's investment in bio-nutritional company Avesthagen through its subsidiary daninvest.com.

The Wadias claim that this is against the interests of Wadia BSN and had appealed to the High Court for a stay on the investment. The partners, it is believed, are now in the process of settling their dispute through arbitration and it is likely that Danone may buy out the Wadia stake in the joint ventures.

In China, Danone also has a stake in other foods companies including Bright Dairy & Food Co, Shenzhen Health Food Co, Guangdong Robust Group and Shanghai Aquarius Drinking Water Corp. Danone is the second-biggest shareholder of Hong Kong-listed China Huiyuan Juice Group, the nation's largest maker of pure-fruit drinks. Last December, Groupe Danone formed ventures with China Mengniu Dairy Co, the country's biggest producer of liquid milk.

Reuters reported that Wahaha chairman, Zong Qinghou has said that their agreement with Danone restricts its growth, while allowing Danone to invest in rival companies. Wahaha employees too are supporting the board in its move to prevent the sale of the venture to Danone. "We have never seen any contribution from Danone,'' Wahaha's employees said in a statement."Our requests for pay rises were always rejected.''

Danone formed five ventures with Wahaha in 1996, and now owns a 51 per cent stake in them. The French company has so far invested 1.5 billion yuan ($194 million) in the ventures and realised a profit of 3.8 billion yuan, according to Wahaha's Zong.

Wahaha sells mineral water, tea, fruit juices and baby milk in China under the Wahaha brand.