Yakult and Danone end disappointing 20-year capital alliance

TOKYO — French food processor Danone has sold its stake in Japan’s Yakult Honsha, dissolving its 20-year-old capital ties with the Japanese probiotic drink maker, as the tie-up failed to produce the hoped for synergies.

Yakult, which once feared a takeover by Danone, has regained full management independence. But the company finds itself under pressure to bolster its overseas businesses.

Yakult announced Wednesday that Danone had notified it that the French company had sold its 6.61% stake. Yakult, in a statement released the same day, stressed the two will continue to work together. “Yakult and Danone will maintain their long-term amicable relationship and continue to promote probiotics in the future,” the statement said. Probiotics are microorganisms that have health benefits for humans.

The two companies have agreed to continue their joint ventures in India and Vietnam even after capital ties are dissolved. The duo will continue to promote probiotics in the U.S. and India, including holding seminars and supporting researchers in the U.S.

The Danone-Yakult investment ties began when Danone acquired a 5% stake in Yakult in 2000. Danone found Yakult’s lactobacillus casei strain Shirota attractive and hoped an alliance would work in its favor. The French company later increased its stake, becoming Yakult’s top shareholder with nearly 21% of the shares. The two companies also concluded a business tie-up agreement.

Yakult first ventured abroad in the 1960s, mainly in emerging markets. The company continued to expand overseas even after Danone became a shareholder. The company’s overseas sales ratio jumped to 40% in the fiscal year ended March 2020, up from about 10% in the fiscal year ended March 2001. At present, 70% of its operating profit comes from overseas.

But one Yakult executive said the collaboration with Danone “had little synergistic effect.” Yakult enjoys robust earnings in regions where it operates on its own. Last year, the Japanese company sold 6.36 million probiotic drinks a day, on average, in Indonesia, and 8.12 million in China.

A “Yakult lady” makes a sale to a customer in Indonesia. Sources say Yakult’s traditional business model, born in Japan, was not well understood by Danone. (Photo courtesy of Yakult)

Its Indian joint venture with Danone, meanwhile, only sold 238,000 drinks a day last year. It seems there was little effective collaboration between the partners in the South Asian country.

“We couldn’t make Danone fully understand our expertise, including marketing by Yakult Ladies, our unique home-delivery sales network,” according to Yakult sources. It was also feared that the two companies would end up competing for health-conscious customers. For Yakult, the 20-year-old tie-up with Danone did not bear fruit as expected.

“We want to sell Yakult, the company’s namesake probiotic drink, in China, Europe and the U.S.,” said President Takashige Negishi, hinting the Japanese company may also team up with partners other than Danone to shore up its overseas business.

Shares in Yakult closed at 5,480 yen Wednesday on the Tokyo stock market, down 420 yen, or 7.12%, from Tuesday, as the shares come under selling pressure due to the dissolution of capital ties with Danone and concerns over a possible glut of Yakult shares.

But one stock watcher downplayed the news. “The collaboration between Yakult and Danone had few synergistic effects in the first place, and therefore it will only have a little impact on Yakult’s management even if Danone ceases to be a shareholder,” said Hisayuki Shimokawa, an analyst at Tachibana Securities in Tokyo. “It will be important for Yakult to expand its business in China and other Asia countries,” he added.

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