Jointventure

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Danone v. Wahaha: Lessons for Joint Ventures in China Steven M. Dickinson Harris Moure PLLC www.harrismoure.com

Danone Group and its partner, Wahaha Group Company, are shareholders in a joint venture company that is the largest beverage company in China. A recent dispute between the partners now threatens to wreck the joint venture. What lessons can be learned from this dispute for investors considering new joint ventures in China? Disputes such as this are not inevitable in China. They can be avoided by following certain basic rules. Many of the most important rules were violated in this case. As a result, the problems that have arisen were almost certain to occur.

I.

The Facts A. Formation of the Joint Venture Company

The Wahaha Joint Venture (“JV”) was formed in February, 1996. At the start, there were three participants in the JV. (1) Hangzhou Wahaha Food Group Co. Ltd. (“Wahaha Group”), led by its chairman Mr. Zong Qinghou. (2) Danone Group, a French corporation (“Danone”). (3) Bai Fu Qin Ltd., a Hong Kong corporation (“Baifu”). Danone and Baifu did not invest directly in the JV. Instead, Danone and Baifu formed Jin Jia Investment Co. Ltd., a Singapore corporation (“Jinjia”). Upon the formation of the JV, Wahaha Group owned 49% of the shares of the JV and Jinjia owned 51% of the shares of the JV. This structure led to immediate misunderstandings between the participants. From the Wahaha Group’s point of view, the division of ownership was 49% Wahaha Group, 25.5% Danone and 25.5 % Baifu. From this point of view, Wahaha Group was the majority shareholder in the JV. Since Wahaha Group felt it controlled the JV, it was relatively unconcerned when it transferred its trademark to the JV. Wahaha was further comforted that the other party to the JV was a Hong Kong company, feeling that the Chinese participants in the JV thoroughly outnumbered the foreign…...

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