Battle for control of China’s largest beverage maker escalates

The former chairman of the Wahaha Group and many of the company’s top executives joined forces today to denounce their longtime partner, Groupe Danone, the French food and beverage giant, and threatened to form a company that would break away from its joint venture.

At a press conference today in Hangzhou, where Wahaha is based, the company’s top executives made clear for the first time that they intended to leave Wahaha if Danone did not give in to a list of demands they put forth, including a promise to stop investing in competing Chinese companies and an apology for harming the 11-year-old joint venture.

Wahaha officials also said the company planned to file for arbitration hearings in Hangzhou.

“If Danone apologizes and agrees to remove two restrictive articles, we’re still willing to continue the cooperation,” said Yang Xiuling, a Wahaha sales executive. “Otherwise we’ll see them in court.”

Also among the Wahaha demands is a call for Danone to drop its contention that the joint venture has exclusive rights to the use of the Wahaha brand name.

When asked whether the 13 executives who appeared at the press conference would join the former chairman, Zong Qinghou, in forming a new company if Wahaha and Danone could not resolve their differences, a spokesman for Wahaha answered for the group: “absolutely.”

The announcement escalates a remarkable and often bizarre corporate battle for control of China’s largest beverage maker.

A spokesman for Danone declined to comment today.

But Danone said Tuesday that it hoped to find an amicable solution to the crisis and had no interest in selling its 51 percent stake in Wahaha.

The difficulties began late last year, when Danone officials accused Mr. Zong, who founded Wahaha in the 1980s, of forming a series of secret companies that mirrored the joint venture and siphoned off millions of dollars.

To stop the “illegal” companies from proliferating, Danone filed a lawsuit in California last week against a group of offshore companies that are controlled by Mr. Zong’s relatives,

A few days later, Mr. Zong, who is one of China’s wealthiest businessmen, angrily resigned as chairman of Wahaha, saying he and his family had been harassed and slandered by Danone.

Danone appointed Emmanuel Faber, head of Danone’s Asia operations, as interim chairman of Wahaha. But Danone has no executives in senior management at Wahaha. And today’s press conference suggests that Mr. Zong, even after his resignation, remains a powerful figure at the company.

After his resignation Mr. Zong penned a fiery open letter to Danone, defending his tenure as chairman and ridiculing Danone and its executives.

Since then, Mr. Zong and Wahaha have aggressively battered Danone in public, posting venomous letters on the Internet and vowing to punish Danone’s “evil deeds.”

“Thinking back on the 11 years of our cooperation with Danone, we’ve done everything and they’ve done nothing,” Mr. Zong said at the press conference today. “They only split our wealth, and still want to sue us.”

Mr. Zong was joined by a group of senior Wahaha executives, who took turns attacking Danone’s leadership and defending their dissent.

The executives insisted they had a right to use the Wahaha name, contending that the brand was not completely owned by the joint venture, despite Danone’s statements.

They also said the joint venture’s products had been struggling recently, while the new products offered by the outside companies formed by Mr. Zong and some employees were showing strong growth.

Part of the problem, Wahaha executives said, was that Wahaha’s retail dealers had soured on the joint venture products after Danone went public with its dispute with Mr. Zong.

Some dealers are now favoring the nonjoint venture products, produced by the outside companies controlled by Mr. Zong and the employees, Wahaha officials say.

Liu Zhimin, vice chairman of the sales department at Wahaha, said the joint venture profits were in decline and that Danone’s lack of management skill was partly responsible.

“They don’t do anything, except get a share of the profit,” Ms. Liu said. “They’ve gotten about $500 million over the past 11 years.”

(Published by The New York Times, June 13, 2007)