SHANGHAI: Amicable resolution is still within reach and could be the best solution for the legal dispute pitting French food and beverage giant Groupe Danone SA against its Chinese joint venture partner Wahaha.

Despite a series of recent twists and the likelihood of further complications - some worry employees might take more radical measures such as going on strike - a peaceful solution can still be foreseen as no one in the battle can afford the prolonged lawsuits.

The wrangle with Wahaha's founder Zong Qinghou has cast a dark cloud on Danone's performance on the stock market as its shares have dropped about 10 percent in the past two months.

At Wahaha, employees and distributors' morale and unity are undermined by attempts to stir up emotions as the peak season for sales has arrived.

But analysts say Danone, instead of taking companies related to Zong to court in the United States, could learn that an amicable solution is best after its tough position encountered even stronger resistance from Zong, who is known for his brash management style and strong personality.

Wahaha employees are also accustomed to the Chinese entrepreneur's long-time leadership.

Shortly after the Paris-based company filed a lawsuit in the US over companies run by Zong's wife and daughter for alleged unauthorized sale of Wahaha products, Zong angrily resigned as chairman of the joint ventures.

Two days later, an irritated Zong released a harshly worded letter online, saying he could no longer deal with what he called Danone's "harassment and smear campaign against him and his family".

"It was very hard to work with people who do not understand the Chinese market and culture. They only want to take the benefits instead of taking on risks and carrying out their responsibilities," Zong says in the statement.

He also accused Danone of resorting to personal attacks when its buy-out attempt failed.

The departure of the 61-year-old Zong has also ignited further discontent from some of the Wahaha's employees. In a series of letters, employees and distributors denounced Danone officials' "ignorance and bullying", and vowed to stand by "Chairman Zong" and to punish Danone's "evil deeds".

Some enraged joint venture employees even took to the street last week to protest the alleged hostile takeover and show their dissatisfaction about Zong's departure.

Without Zong, the French company has nearly lost access to managing the joint ventures.

"Can you imagine if I'm trying to push open the door of the factories just to be told that I cannot be there?" says Emmanuel Faber, Danone's managing director for Asia and interim head of the joint ventures.

The French executive also expressed concerns about the attitude of management personnel.

"We simply urge people in this situation not to take irresponsible actions and focus on the day-to-day service to our companies, making sure our distributors are being served with our products and ensure we are ready for the high season, which is starting now," he says.

But to his disappointment, many of the company's top executives have threatened to bolt from the French food and beverage giant and to form a separate company.

Despite these twists, a peaceful solution can still be foreseen.

Danone has made it quite clear that an amicable settlement is possible under the right conditions, especially with adequate government support and guidance.

Currently the Chinese government takes a neutral stance on the dispute, but Yao Shenhong, a Ministry of Commerce spokesman, said that "we hope the two sides will not let any chance to solve the dispute through friendly discussions slip away".

Faber said that currently Danone has no intention of taking further legal measures against "unauthorized" businesses started by Zong after it took two of the 20-something companies to court in the US. A channel remains open between Zong and Danone to address the dispute peacefully.

"In May, we suggested to the Hangzhou municipal government that a channel of negotiation be opened between Zong and Danone, with a clear process of discussions and designated persons to do this," Faber said.

"This process existed and may still exist although it has been on and off during last few weeks. I believe this channel still exists," he said.

Spiking rumors that Citic Group has been involved in the discussions, Faber stressed that "it doesn't mean it could be (a third party will be involved) in the future. We are open to a number of variations around a very simple principle that the status quo is not an option".

Analysts point out that the legal process is something that Zong would not like to see as well.

In earlier interviews, the outspoken Chinese executive admitted that non-compete contracts were signed in 1996 that banned the domestic company from manufacturing identical products or using Wahaha's brand without Danone's consent.

In a recent letter, Zong made an ambiguous statement about Danone's application to an international body for arbitration.

"They are not necessarily to win and we are not necessarily to lose," he said.

The dispute will further develop before a mutually acceptable solution surfaces, analysts said.

"It might be not a proper time for Danone to withdraw the lawsuit," said Qu Honglin, general manager of Local Strategy, a Shanghai-based consultancy. "That will happen after more negotiations are organized by governments."

(China Daily 06/16/2007 page2)

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