Danone Splits from Wahaha, Amicably

After several years quarrels and disputes, the international food giant Danone finally found a peaceful settlement with the Chinese domestic food and beverage company Wahaha.

On September 30, Danone and Wahaha declared that they have reached an amicable settlement upon their joint ventures in China. Danone agreed to sell its 51% shares of the joint ventures to Wahaha at the price of 300 million euros. After the implementation of the settlement, both companies will put an end to all the lawsuits related with their disputes.

For this settlement method, Franck Riboud, chairman and CEO of Danone Group, said: “The cooperation between Danone and Wahaha set up a powerful and respectful enterprise in the Chinese beverage industry. We believe that it will still achieve great success in the future.”

Zong Qinghou, president of Wahaha Group said: “China is an open country and the Chinese people is a tolerant people. The Chinese enterprises are willing to build the cooperation with the international famous enterprises based on the principle of equality and mutual benefit.”

Gratitude and Resentment between Danone and Wahaha

In 1996, Danone and Wahaha set up their joint ventures in China. Danone contributed 45 million US dollars and the trademark transfer fees of 50 million yuan (USD 7.33 million). It took 51% of the shares of the joint ventures with the other 41% shares taken by Wahaha. The joint ventures had a good business performance in the ten more years after foundation. Danone has got profits of more than 3 billion yuan (USD 439.54 million) from it.

However, in 2006, the newly appointed president of the joint ventures Emmanuel Faber found that Zong Qinghou set up some non-joint venture companies apart from the existing joint ventures. These non-joint ventures were controlled by some state-owned enterprises and their employees and used the same trademark of the joint ventures between Danone and Wahaha. Emmanuel Faber thought that these non-joint venture companies took away the market and benefits which should belong to the joint ventures. Therefore, he wanted to spend 4 billion yuan (USD 585.99 million) in buying the 51% shares of the non-joint venture companies, which was rejected by Zong Qinghou.

Then, Danone launched a series of lawsuits against Zong Qinghou and the non-joint venture companies.

Danone: Always the Looser

It was quite unfortunate for Danone because it never got rid of being a looser in all the lawsuits against Wahaha.

In May 2007, Danone officially started its legal lawsuits against Wahaha. Following that were there more than 30 lawsuit cases happening in-and-out of China. Among them, the cases happening in the British Virgin Islands and the USA were the most typical ones.

In November 2007, the courts in British Virgin Islands and Samoa declared the freezing order and taking-over order for the assets of the foreign shareholders of Wahahas non-joint venture companies. However, no people representing Wahaha attended the hearings and the judgments were made with the misleading of Danone. One year later, the judgers realized these facts and cancelled the freezing order and taking-over order.

After the failure in British Virgin Islands, Danone launched a lawsuit against Zong Qinghous wife and daughter and the other two irrelevant companies in the USA. The US courts rejected Danones lawsuits with the reason of inconvenience in inquisition and asked Danone to lodge the complaint to a court in China.

Wahaha Group didnt only respond to the lawsuits of Danone. In truth, Wahaha also launched the lawsuits against Danone just following Danones actions. In November 2008, the mediate court in Suqian, Jiangsu made a judgment for the auditor KPMG which was entrusted by Danone to carry out the freezing order and takeover order for the non-joint venture companies of Wahaha in China. The judger said that KPMGs actions violated the related Chinese laws and regulations and infringed on the property right of Wahaha.

In June 2009, the Higher Peoples Court of Jiangsu rejected the appeal of Danone and KMPG and adjudged that the trademark of “Wahaha” belonged to Wahaha Group. This was the 38th straight failure of Danone in the disputes with Wahaha. No matter in and out of China, it never saw a success concerning this matter.

Danone was at last tired of the role of loser. It chose to completely split from Wahaha and put an end to the frequent disputes in the two years.

Public Opinions

People have always been paying attention to the seeming-to-be-endless disputes between Danone and Wahaha. Soon after the publication of their amicable settlement, the experts gave out their own opinions.

The famous economic reviewer Wu Xiaobo thought that Wahaha is the best entity investment of the foreign companies in China in 20 years.

Wu Xiaobo described the cooperation between Wahaha and Danone as a failed marriage. Both sides were trapped in quarrels and disputes from the start. Choosing to divorce was good for them. “We should say congratulations to them”.

Wu thought Wahaha was the best entity investment because both Danone and Wahaha got great rewards from their troublesome cooperation. Wahaha got the capital and technological support and Danone got a huge amount of benefits from the joint ventures.

Wu attributed the failure of their cooperation to the indefinite property right of the joint ventures. The possession of the trademark, which should be made clear at the beginning of their cooperation, was not settled down and resulted in the subsequent disputes.

Wang Fanghua, professor from Shanghai Jiaotong University, thought that the amicable settlement doesnt mean an end to the competition between Danone and Wahaha. In his opinion, the multinationals like Danone can draw a lesson from this case – they should not take measures without knowing clearly about the situation of Chinese market, brands and assets.

Wang also thought that Danone and Wahaha have got what they want from their cooperation. Thats why they chose the amicable settlement. He also partially attributed the amicable settlement to the international financial crisis.

Jiang Zezhong, professor from Capital University of Economics and Business, said that Danone was quite wise to quit. “The joint ventures between Danone and Wahaha had many defects in assets allocation, property right and trademark possession, which can also be seen in many Chinese private companies.”

Jiang believed that the continuation of the disputes will exert negative influence upon both sides development. “The foreign enterprises arent accustomed to the Chinese laws and regulations. The Chinese companies need the sense of internationalization in their future development.”

Some experts advised Zong Qinghou to find another foreign partner for Wahaha. Some experts thought that Danone should change its investment strategy in China. The two companies separated from each other with what they want. The result can be said to be satisfactory to everyone.