Danone has reached an agreement with COFCO Dairy Investments to convert its stake in China Mengniu Dairy into a direct holding, marking its first step towards divesting its interest in the dairy firm.

Danone currently holds a 9.8% indirect stake in China Mengniu, a manufacturer and distributor of dairy products.

The French dairy giant says that the newly announced agreement with China Mengniu shareholder COFCO is part of its ongoing portfolio review process.

Danone has recently come under pressure from some shareholders, which have criticised the company’s performance and have been pushing for governance changes.

The conversion process remains subject to regulatory approval and once completed, will result in Danone owning a direct 9.8% holding in China Mengniu.

Danone says that a divestiture of the stake could then follow later this year through one or several transactions, “depending on market conditions”.

Danone’s indirect stake in China Mengniu’s share capital currently has a book value of approximately €850 million.

The majority of proceeds from any future sale would be returned to shareholders through a share buyback programme.

Danone says that China remains ‘highly strategic’ for the company and that it retains a strong commitment to the country..