Danone SA is paving the way to sell its stake in China Mengniu Dairy Co (中國蒙牛乳業) later this year by converting the investment into a direct holding.
The 9.8 percent stake is held indirectly and has a book value of 850 million euros (US$1.03 billion), the world’s largest yogurt maker said in a statement on Sunday.
The majority of the proceeds would be returned to shareholders through a share buyback program.
Photo: Patrick Kovarik, AFP
China Mengniu shares early yesterday climbed as much as 3.4 percent amid a broader market rally in Hong Kong.
Danone started a strategic review in October last year, when it announced plans to sell smaller businesses such as the Vega protein-powder brand and Argentinian operations.
Chief executive officer Emmanuel Faber last month also said that Danone would divest assets that do not contribute to profitable growth.
Faber is under scrutiny after the stock lost one-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 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 e-mailed statement.
Danone first took a stake in Mengniu in 2013, and said that China would 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 that it respects Danone’s decision and the move would not affect its business strategies and plans.
The planned sale of shares, which are indirectly owned by Danone and COFCO Corp (中國糧油), Mengniu’s biggest shareholder, would cut COFCO’s holding to 21.43 percent from 31.25 percent.
The Chinese dairy maker is expected to post a 17 percent profit decline last year amid the COVID-19 pandemic’s disruption of the supply chain and logistics, after reporting profit growth of more than 30 percent both in 2018 and 2019.
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