The French group already held an 11.55 per cent share but increased its stake after buying a combined 88.2 million shares from S.I. Food Products Holdings and Shanghai Milk Group, Bright Dairy said in a statement to the Shanghai Stock Exchange today.

The transaction is still subject to government approval.

Danone's stake in Bright Dairy, which uses the Danone brand name in China and factories formerly run by Danone, has already helped it build up a lead in the rapidly growing added value yoghurt business.

Food consultancy Leatherhead claims that the two firms together hold nearly 40 per cent of this new category, which is currently growing by around 40 per cent in volume terms each year.

Bright Dairy's lead in this sector was also helped by Kraft's exit from the Beijing yoghurt market in 2003 and Parmalat's closure of its line in 2004.

Domestic players have since driven growth in this segment, with Mengniu recently reporting a 74.7 per cent increase in its yoghurt sales during 2005 to CNY641.2 million (€66m) and revenue from its milk drinks, like the well-known Suan Suan Ru range, more than doubling.

However the competitive market place and low pricing has not benefited Bright Dairy's profits. The firm said a month ago that its 2005 net income fell by a third on the prior year and sales had only risen 1.7 per cent to CNY6.9 billion.