FRENCH food and beverage company Danone said today it will invest 2.6 billion yuan (US$417 million) in China's largest dairy producer Mengniu Dairy Co Ltd to boost its presence in the country.

Prominent Achiever Ltd, a joint venture 51 percent owned by state-backed agricultural company COFCO and 49 percent owned by Danone, will acquire a 8.3 percent stake in Mengniu from COFCO, according to a joint statement.

Mengniu said in a stock exchange filing today that Danone has signed a framework agreement to combine the two companies' chilled yogurt businesses.

Shares of Mengniu surged as much as 11.4 percent to HK$27.30 in the morning session.

Danone will own 20 percent and Mengniu 80 percent of the new joint venture, which is expected to benefit from both Danone and Mengniu brands.

Danone will introduce its quality control and product innovation expertise while Mengniu will leverage its yogurt distribution network.

"The partnership with COFCO and Mengniu will allow Danone brands a wider reach to the largest number of Chinese consumers," Danone chairman and chief executive officer Franck Riboud said.
Danone sells Bio yogurt and Dumex infant formula in China and currently has 22 factories in the country.