Hong Kong, Dec. 19 - Shares in top Chinese milk processor Mengniu Dairy slid nearly 4 percent on Wednesday after France's Danone said it was pulling out of their dairy venture before it had got off the ground, citing slower-than-expected progress.
Danone's pullout raises questions over the French company's other partnerships in China -- a market that yields close to one-10th of its global revenue -- especially after ties with national drinks champion Wahaha soured when the two publicly accused each other of trademark violations.
Danone, the world's largest food and drinks maker, owns more than one-fifth of Huiyuan, China's biggest producer of juice drinks, and has partnerships with several other well-known local firms including Shanghai's Aquarius.
"Yoghurt-making is not rocket science, and Chinese companies like Mengniu can live without Danone," said Wang Yiguo, analyst at China Jianyin Investment Securities. "But Danone's China business would be affected if it loses such a major partner."
The news pushed Mengniu's shares as low as HK$25.40 in mid-morning trade, their lowest in nearly a month. By mid-afternoon they were at HK$25.90, down 2.5 percent on the day.
A source close to the company said the venture's lapse would not have much impact on Mengniu's bottom line, because yoghurt contributed just 6 percent of the Hong Kong-listed company's revenue in the first half of 2007.
"The progress of setting up the joint venture, such as obtaining required approvals and so on, has been very slow. Both parties agreed it would be better to call off this joint-venture method of cooperation," the source said.
Asia-based executives for the French firm declined comment.
Danone and Mengniu both said in statements on Tuesday they would continue to seek ways to tie up.
The source added that Mengniu would continue producing yoghurt for Danone, while the French company would focus on marketing and distributing products across China.
The European giant has unwound some of its Chinese investments this year. It sold its one-fifth slice of Bright Dairy, a Mengniu rival, in October and said at the time it planned to operate on its own in China as much as possible.
Bright Dairy said the break-up would have little impact on its business or overall sales.