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Wahaha, Danone Agreement Invalid?
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The dispute between Chinese beverage company Wahaha and its French partner Danone took another unusual and very pubic twist on Friday with the Wahaha president admitting he made mistakes but insisting the original contract he signed isn't valid.


Wahaha's president Zong Qinghou says the original agreement between the two beverage giants was never approved by China's trademark office and so is not in force or effect.


In a letter posted on one of China's major web portals,, Zong said a trademark-license contract must be approved by the Trademark Office of the State Administration for Industry and Commerce but he never submitted the original which restricts China's largest drink producer from independently expanding.


"We did sign the contract," admitted the president of the Hangzhou-based conglomerate. "At the time, Wahaha was only focused on management concerns and the interests of employees and knew nothing about capital operations."


"My ignorance and breach of duty brought trouble to the development of the Wahaha brand," said Zong.


"Wahaha has fallen into a trap deliberately set by Danone," he said.


The ugly board room dispute spilled into the public domain when Wahaha complained that Danone was putting it in a development straightjacket, while the French company was actively investing in other beverage companies around the country.


Danone says the joint-venture agreement does not allow Wahaha to create new businesses that exclude the French company, but Wahaha has set up a series of independent companies that compete with products made by the joint venture.


Wahaha responds to that allegation, by saying Danone has done even greater damage to the partnership by investing tens of millions of yuan in numerous other competing beverage makers in China.


In Friday's on-line letter Wahaha says, "Danone is trying to force Wahaha to implement the invalid defiance of Chinese law."


Hangzhou Wahaha Group Co. Ltd., which is 51 percent owned by Danone, has turned down the French firm's offer of four billion yuan for its remaining assets.


The French food giant on Wednesday issued an ultimatum, giving its Chinese partner 30 days to end the feud, otherwise Wahaha's businesses that were established outside the joint venture will be sued.


At Wednesday's news conference, Danone accused Wahaha of violating a non-compete clause in a joint venture contract signed in 1996 by secretly setting up independent sales companies.


"Wahaha did set up other companies, but not secretly," Wahaha said in response. "These companies were audited by Danone every year."


"The fact is Danone has violated the spirit of the contract," said Wahaha.


Wahaha accuses Danone of doing a number of deals in China that have undermined the Wahaha-Danone joint venture. According to Wahaha, these include:


-- In 2000, Danone bought 92 percent of Wahaha's biggest rival, Guangdong Robust Group, which Wahaha says cost it market share and the loss of 49 million yuan in profits that year.


-- The French company has bought stakes in at least seven leading Chinese food and dairy companies.


-- It has 45.2 percent stake in Shanghai-based Bright Dairy and Food Co, and a 22 percent stake in Beijing-based Huiyuan Juice Holdings Co.


-- Last December, Danone also set up joint ventures with Mengniu Dairy Co, China's largest liquid milk producer, in which it owns 49 percent of the stake.


"Danone has pumped over US$170 million into the joint ventures over the past decade," said Zong.


Danone issued a brief announcement Friday evening, expressing strong dissatisfaction with Wahaha's on-line announcement, and reminding the Chinese company of the deadline for solving the problem.


When commenting on the dispute, a spokesman for China's Ministry of Commerce said that the ministry will handle the issue according to the country's existing rules and regulations on foreign acquisitions.


Chinese authorities have a delicate balancing act on their hands in trying to find a solution that both beverage companies can swallow. The spokesman says the ministry wants foreign investors to maintain their confidence in the Chinese market but must also protect the rights and interests of domestic enterprises.


Wahaha, which started off as a factory in a small school, has grown into a conglomerate that produces more than a dozen products including bottled mineral water, dairy products, and juice packs.


(Xinhua News Agency April 15, 2007)


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