FRANCE’S Danone SA will spend US$665 million lifting its effective stake in China’s top dairy firm, China Mengniu Dairy Co., as it seeks to boost its presence in one of its most important markets.

    The investment by the world’s biggest yogurt maker will see its effective holding in Mengniu rise to 9.9 percent from 4 percent, making it the Chinese company’s second-biggest shareholder.

    Booming Chinese demand for dairy products has sparked a raft of mergers and acquisitions and initial public offerings in China’s dairy sector. Food-safety scares have also boosted demand for foreign baby milk formula, pushing local dairy firms to increase ties with foreign makers.

    Sales of dairy products are expected to nearly double from 2012 to 2017 to about US$89 billion, business consulting firm Frost & Sullivan estimated.

    Danone, the maker of Bledina baby food and Volvic water, formed an alliance with Mengniu in May 2013, under which the companies agreed to produce and sell chilled yoghurt products in China.

    Under the new agreement, Danone and COFCO Dairy Investment, a venture with COFCO, will subscribe to a reserved rights issue by Mengniu at HK$42.5 (US$5.48) per share, a 15.3 percent premium to Mengniu’s previous close.

    COFCO, Danone and dairy cooperative Arla Foods, Mengniu’s three core shareholders, will combine their stakes within COFCO Dairy Investments, Danone said in a statement. COFCO owns 16.3 percent of Mengniu and Arla owns 5.3 percent.

    Danone has long aimed to establish a major presence in China. Its first joint venture with China’s largest beverage company, Hangzhou Wahaha Group Co., fell apart in 2009 after 13 years. (SD-Agencies)