Beginning of Public Row
Danone had made several attempts to buy out Zong, but was rebuffed. Danone and Zong signed a deal in December 2006, allowing Danone to buy out the non-JV operations. However, Zong had second thoughts about the deal and reneged, claims he could not carry his co-investors, according to The Wall Street Journal. Zong claims the offer was rejected as it was underpriced, and wanted to squeeze more out of Danone.
On 3 April 2007, the war of words started with an article on Xinhua's website entitled "Wahaha victim of low-ball buyout by Danone" which stated that the board had rejected Danone's attempt at a "hostile takeover" of Wahaha for ¥4 billion. The article was written by a Xinhua journalist to whom Zong had given an "internal reference" document in the hopes of influencing political leaders on the fate of Wahaha.
On 10 April, Danone issued a statement implying that Zong was in breach of his agreement with Danone by having entered into joint ventures with other partners with rights to use the brand. Zong had been accused of selling identical products using the Wahaha brand outside of the joint ventures, and Danone demanded a 51% stake in these. Danone sent a warning letter to Zong, in his capacity as the Chairman of the Wahaha joint ventures, giving 30 days for WHH to stop illegally selling products under Wahaha trademark without proper authorization.
Zong said that Emmanuel Faber had personally authorised the setting up of the units outside the scope of the joint ventures. Danone concedes that in around 2003, it allowed Zong to become a minority partner in businesses that made Wahaha products outside their joint-venture structure, apparently because local governments often preferred to have Zong personally as a partner. By 2005, Danone realized Zong controlled as many as 20 external businesses making drinks, and claims these represented approximately 25% of Wahaha products. Danone estimates that Zong had established in excess of 80 unauthorised companies using the WHH brandname between 2001 and 2006.
Zong set up externally owned factories to produce products identical to WHH, and Danone alleges that dealers were asked to set up new bank accounts for their deposit payments in the name of WHHFBSC to sell products from these factories.
Danone, which had apparently been relying on the WHH distribution network to sell Danone brand products, also found itself being the victim of mis-channelling. Since the dispute has erupted, distributors and employees have come out in support of Zong, calling for a boycott of Danone products.
Read more about this topic: Wahaha Joint Venture Company
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