Danone Wahaha : The Yogurt Pot Thickens... Slowly

Danone, the French yoghurt and mineral water producer, said yesterday that it had taken the first step in carrying out legal action against its main joint venture partner in China.Read original article

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The French food multinational, whose brands include Evian and Activia, last month accused Hangzhou Wahaha of undermining their joint venture, which has been one of the most successful in China since its creation in 1996.

The joint venture's products include Wahaha, the leading Chinese brand of bottled water.

Danone claimed last month that its partner had set up a parallel business selling the same productsin direct competition with their joint venture, which had sales of more than €1bn ($1.36m) last year and which is 51 per cent owned by Danone.

In a letter sent on April 9, the French group formally warned Hangzhou Wahaha that it would begin legal action for a breach ofcontract if it could not resolve the matter within30 days.

Yesterday, following the expiration of this deadline, Danone said it had "commenced appropriate proceedings" without specifying what measures that actually entailed.

However, it insisted that the breakdown in its relationship with Hangzhou Wahaha and its chairman Zong Qinghou was not yet irreparable.

"Danone still hopes we can solve the dispute through peaceful discussion, and we are working hard towards this direction," it added in the statement.

Mr Zong, one of China's most successful entrepreneurs, had fired the first public salvo of this increasingly bitter dispute last month, when he gavean interview claiming that Danone was trying totake control of certain Wahaha subsidiaries that were not part of the joint venture.

Arguing that the termsof the joint venture agreement were unfair, he also accused Danone executives of having a "superior" attitude and a weak understanding of China.

The Danone statement emerged too late for Mr Zong to be approached for comment last night.

In an interview with Les Echos, the FT's French sister paper, last month, Franck Riboud, the chairman and chief executive of Danone, said that he hoped that the dispute would be resolved by July.