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Danone To Convert Indirect Stake In China's Mengniu To Direct For Planned Disposal

French food company Danone SA (DANOY.PK) announced Monday that it has reached an agreement with COFCO Dairy Investments Limited or CDI, to convert Danone's stake in China Mengniu Dairy Co. Ltd., currently held indirectly, into a direct holding.

Mengniu is a Chinese manufacturing and distribution company of dairy products, in which Danone first became a shareholder in 2013. It is listed on the Hong Kong Stock Exchange with a current market capitalization of approximately 18 billion euros.

According to Danone, conversion is the first step towards facilitating its disposal of its stake in Mengniu. This conversion process remains subject to regulatory approval and once completed, will result in Danone owning a direct 9.8% stake in Mengniu.

A divestiture of Danone's stake in Mengniu could then follow in 2021 through one or several transactions, depending on market conditions.

Danone's indirect stake in Mengniu's share capital currently represents a book value of approximately 850 million euros and had in 2019 a contribution to recurring income from associates of 57 million euros.

Subject to completion, and in line with the Danone's disciplined capital allocation, the majority of the expected proceeds will be returned to shareholders through a share buyback program.

Danone noted that China remains highly strategic beyond this transaction.

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