Danone products on display in a supermarket in Shanghai. The French food giant said Tuesday it would sell all of its stake in joint ventures with Wahaha. Photo: AFP

By Chen Yang

Hangzhou-based Wahaha Group, China's largest soft drink maker, said Wednesday it had reached an amicable settlement with French dairy giant Danone, ending two years of legal disputes.

The agreement has been reached with the support of both the Chinese and French governments, and is still subject to the approval of the Chinese authorities, said the companies in a joint statement that failed to give any financial details.

"We are confident that Wahaha will continue to be highly successful under its future management guidance," said Franck Riboud, CEO and chairman of Danone, in the statement.

Danone, which agreed to sell its 51 percent stake in the joint ventures to its Chinese partners, is interested in accelerating the success of its Chinese activities, he said.

Danone and Wahaha's previous collaboration helped build a strong and respected leader in the Chinese beverage industry, he said.

"Chinese companies are willing to cooperate and grow with global leaders on a basis of equality and reciprocal benefits," said Zong Qinghou, founder and chairman of Wahaha.

The execution of this agreement will also put an end to all legal proceedings related to the disputes between the two parties, which began in 2006, when Danone said it had discovered that Zong had set up an entire production and distribution network in parallel to the joint ventures.

Danone and Hong Kong-based Peregrine Investments Holdings invested $70 million to form five joint ventures with Wahaha in 1996, acquiring a 51 percent stake.

After Danone's request that Wahaha's trademark be transfered to the joint ventures was denied by the Chinese trademark office, Wahaha promised in a contract not to set up similar businesses that would compete with the joint ventures.

When Peregrine collapsed in 1998, Danone acquired its stake in the joint ventures and became the majority owner.

After failing to acquire a 51 percent stake in these new companies at a total price of 4 billion yuan ($586 million) in April 2007, Danone initiated a series of lawsuits in China, US and Sweden, accusing Wahaha's breach of agreement by selling Wahaha-branded drinks without its permission.

Wahaha said it didn't know Danone had stakes in Peregrine when they signed the agreement in 1996, and therefore did not expect Danone would become the majority owner. Chairman Zong also accused his French partners of trying to steal a Chinese brand.

Wahaha won most of the lawsuits in China and the US, but the conclusion of arbitration in Stockholm was delayed. During the latest trial in May, Hangzhou Intermediate People's Court of Zhejiang Province ruled that Wahaha owned the trademark.

"The peaceful settlement will benefit both sides, as dissolving the joint ventures would hurt both sides' interest," said Qian Weiqing, a lawyer at Dacheng Law Offices.

"Wahaha can concentrate on its business from now on, but its family management style will be strengthened after Danone withdraw its stake. Wahaha's plans to become more international, however, are now more difficult to implement." Qian said.

Selling Wahaha's stake has been Danone's biggest setback in China so far, according to Li Zhiqi, chairman of China Brand Consultant Team.

Danone also ended its partnership with Inner Mongolia-based Mengniu Dairy and Shanghai-based Guangming Dairy in late 2007.

Currently Danone's businesses in China include Robust, a bottled water and dairy-based drinks producer, and Danone Biscuits China and Dumex, an infants' and children's nutrition company.

"The failure to work well with Chinese companies shows Danone's localization strategy is flawed. The French company's remaining businesses in China will need more investment. Danone still hasn't figured out how to develop its business here," Li said.