French dairy group Danone and US infant formula maker Mead Johnson Nutrition Company have been in talks on a merger or an acquisition deal since March, an industry insider recently told Shanghai’s China Business News.
Foreign media reports said Danone has already conducted an internal strategic review and Mead Johnson has topped the company’s list of «preferred» acquisitions.
The two dairy companies declined to comment on the report on Oct. 20. Yet the news has sent a shockwave through China’s infant formula market.
If a deal is struck between the two companies, China’s infant formula and its entire dairy market will become dominated by three major forces–Danone, Nestle and Fonterra.
Danone has been grappling with falling earnings and some investors have questioned whether the company can thrive in its current form as it competes with larger rivals Nestle and Unilever.
Danone is trying to reduce its reliance on the European market and has sealed several deals in China and Africa.
On May 20, 2013, Danone and China Mengniu Dairy Company signed a framework agreement to establish a joint venture for the production and sales of chilled yogurt products in China.
On Feb. 12 2014, Danone spent HK$5.2 billion (US$664 million) to lift its stake in Mengniu from 4% to 9.9%, making it the Chinese company’s second-biggest shareholder.
Danone has also acquired Dumex to expand its presence in the baby milk segment.
Based on the prices of Mead Johnson’s shares circulated in the market on July 17, if Danone completes the acquisition of Mead Johnson, the deal will be worth between 24 billion yuan (US$3.9 billion) and 26 billion yuan (US$4.3 billion), according to the report.
As of July, Nestle owned the largest share of the global nutrition market at 22.5%, followed by Mead Johnson at 14.5% and Danone at 13.8%.
As of February, Mead Johnson accounted for 11.2% of the baby formula market in China, while Danone Dumex’s market share was pegged at 3.5%, Nestle’s at 4.7% and Wyeth at 13.4%. Chinese baby-milk maker Beingmate Baby & Child has entered an infant formula partnership with Fonterra, which owns 8% of the market, the report said.
Source: Want China Times