SHANGHAI (Reuters) - Dairy giant Danone SA (PA:DANO) will buy a 25 percent stake in Chinese milk powder maker Yashili International Holdings Ltd (HK:1230) for $550 million (343.95 million pounds) as it looks to increase its footprint in China's fast-growing dairy sector, the French firm said on Friday.
Danone will pay HK$3.7 per share in a private placement deal. The tie-up will focus on China's infant milk formula market, set to hit $17.8 billion this year, according to Euromonitor.
China Mengniu Dairy Co Ltd (HK:2319), Yashili's majority shareholder, will see its stake diluted to 51.04 percent from 68.05 percent, according to a company filing to the Hong Kong stock exchange on Friday.
Mengniu, in which Danone holds a near 10 percent stake, bought Yashili in a deal worth about HK$12.5 billion (1.01 billion pounds) last year as part of a plan to expand its milk powder business.
"We are today strengthening the winning team formed by Danone and Mengniu by acquiring an equity stake in Yashili - combining Mengniu's wide-reaching network in China with Danone's international expertise in infant milk products," Danone's CEO Emmanuel Faber said in a statement.
The deal, expected to be finalised in the coming months, still needs shareholder approval.
Trading in Yashili shares, which was suspended on Oct. 29, will resume on Friday.
(Reporting by Adam Jourdan in Shanghai and Donny Kwok in Hong Kong; Editing by Edwina Gibbs)