Yashili New Zealand Dairy Co, the local unit of Chinese-owned Yashili International Holdings, has agreed to sell as much as $18.7 million of base powder dairy products to Danone under a contract that will run until the end of the year.
The deal is disclosed in a notice to the Hong Kong stock exchange because Danone Asia owns 25 per cent of Yashili International and deemed a "connected person".
The notice didn't cite volumes to be sold and the value given is described as an "annual cap for the aggregate consideration". The terms were negotiated on an arm's-length basis and the contract could be superseded by a strategic co-operation supply agreement, it said.
Danone acquired a quarter stake in Yashili, itself a unit of China Mengniu Dairy Co, for HK$4.39 billion ($78.2 million) in 2014 in a deal that included technology and production improvements for the Chinese company. Infant milk producer Yashili had listed on the Hong Kong stock exchange in 2010 before Mengniu, China's largest producer of liquid milk products, acquired a controlling stake in 2013.
Yashili New Zealand Dairy, a joint venture between Yashili and Mengniu established in 2012, invested $220m in a dairy plant in Pokeno capable of producing 52,000 tonnes a year of infant formula.
Yashili announced a collaboration at the Pokeno plant last year as part of a wider deal to buy Danone's Dumex infant formula business.
Danone's local subsidiary, Danone Nutricia, ended its supply contract with Fonterra Cooperative Group after the August 2013 botulism scare and launched a $1b lawsuit against the dairy co-operative in compensation for disrupted sales. It has since been sourcing product from Synlait Milk and other manufacturers and last year bought two Kiwi dairy processing companies, Sutton Group and Gardians.