A customer selects Bright Dairy's yogurt products. Danone Asia Pte spent 121.03 million yuan (US$14.59 million) for a 3.58 percent stake in the dairy firm yesterday.

The move came soon after the central government announced it would encourage private investment in state-run companies. The deal increased Danone's holdings in Shanghai-listed Bright Dairy to 7.7 percent.

Shanghai State-owned Assets Operation Co sold Bright Dairy's stake at 4.82 yuan per share to Danone, 86 percent higher than Bright Dairy's net asset per share, according to the company's third-quarter financial report.

"The deal comes after the government's latest decision to sell state-owned assets," said Ding Pin, an analyst at Haitong Securities Co. "The government wants to create a more relaxed environment and attract more capital from overseas and local private entrepreneurs."

The government, which owns 70 percent of the nation's publicly traded stocks, said it wants to sell shares worth 2.6 trillion yuan to non-state-owned companies, according to Li Rongrong, director with the State Asset Management Commission.

"Currently, about 30 state-run companies are in the process of tapping funds from foreign investors and private entrepreneurs," Li said during the International Merger and Acquisition Summit on Wednesday in Beijing.

"Danone has been active in expanding its Chinese business since 1990s," said analyst Ding. "It is successful in the biscuits and beverages sectors. However, the company remains weak in developing fresh dairy products in China. Bright Dairy has established a national distribution network and made great efforts to expand its business in other places outside Shanghai. It is an ideal partner for Danone, which also wants to be a national player."

Ding also noted the amount of money involved in yesterday's deal, which is unexpectedly high, shows Danone's confidence in China's fast-developing dairy industry.

Danone, the world's largest fresh dairy products and packaged water producer, has acquired 4.12 percent in Bright Dairy since 1998. Meanwhile, Danone is also the largest partner with China's two leading beverage makers - Hangzhou Wahaha Group Co Ltd and Guangdong Robust Group.

No officials from Danone and Bright Dairy could be reached for comment yesterday.

Yuan-denominated A shares of Bright Dairy closed 1.56 percent lower at 10.71 yuan yesterday.

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