Rancor Level Rises in Rift Over Danone China Venture

By David Barboza | The New York Times
09 June 2007

A dispute between Groupe Danone, the French dairy and beverage maker, and its Chinese partner, the beverage maker Wahaha, became even stranger on Friday when Wahaha released several letters written by employees that denounced Danone for being run by “rascals” who were committing “evil deeds.”

The letters, which were filled with vitriol and old-fashioned Communist slogans, came a day after the founder and chairman of Wahaha, Zong Qinghou, resigned in anger, saying that his reputation was being ruined by the dispute.

The resignation had appeared to be a victory for Danone, which is trying to gain control of the venture. On Thursday, Danone named Emmanuel Faber, the head of its Asian operations, as the interim chairman of Wahaha.

But by Friday, there were indications that Wahaha was still being controlled by Mr. Zong or a management team loyal to him.

A spokesman for Danone declined to comment.

Mr. Zong, an entrepreneur who has been ranked as one of China’s wealthiest individuals, could not be reached for comment on Friday.

But Danone’s dispute with its joint venture partner is turning into an increasingly nasty affair, complicating the company’s control over one of its biggest and most lucrative investments in China, a beverage maker with sales of more than $1.4 billion a year.

The dispute erupted this year after Danone, which owns 51 percent of the Wahaha joint venture that was founded in 1996, accused Mr. Zong of operating mirror companies that independently sold goods in China under the Wahaha brand name and then pocketing huge profits.

But Mr. Zong has insisted that Danone executives knew about the affiliated companies and even audited them. He said Danone was seeking to acquire most of them but was unwilling to pay a hefty price, setting off the dispute.

Earlier this year, Danone imposed a deadline on its Wahaha partner to stop the companies from selling Wahaha products outside of the joint venture company.

On Monday, after that deadline had passed, Danone filed a lawsuit in the United States against one of Mr. Zong’s Wahaha-affiliated companies, claiming that Danone had been cheated out of at least $100 million.

The target of the lawsuit was a company controlled or owned by Mr. Zong and his wife and daughter, who are listed as the company’s legal representatives and who live in California.

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