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Second Danone Unit Starts Probe Into Chinese Bribery Claims

Danone (BN) said it will begin a probe into allegations of bribery at a second baby-food unit in China, where the French dairy company was fined for violating anti-monopoly laws and cut prices earlier this year.

Danone’s Nutricia China unit “has immediately launched an internal investigation,” Ada Zhao, a spokeswoman for the company, said by e-mail yesterday after 21st Century Business Herald reported it gave “improper advantages,” including gifts and travel subsidies, to more than 100 doctors in 14 hospitals in Beijing.

Those allegations followed two separate reports this month from a state broadcaster that claimed Danone’s Dumex brand made payments to hospital doctors and nurses in China to drum up sales. China has sought to crack down on corruption in the country’s $350 billion health-care market, probing multiple drug companies amid claims of doctors’ involvement in malfeasance.

Nutricia gave benefits that were worth about 300,000 yuan ($49,000) to doctors in two Beijing hospitals between July 2010 and August 2013, the 21st Century Business Herald reported. The newspaper cited an unidentified person who provided documents to the publication.

Citing documents provided by an unidentified person, the state-run China Central Television reported this week that Dumex paid about 500,000 yuan to hospital staff in the cities of Beijing, Tianjin, and five other Chinese provinces.

That followed a separate CCTV report last week that Dumex paid hundreds of thousands of yuan annually in various forms of “sponsorship fees” to doctors and nurses at hospitals in Tianjin to sell its products amid fierce competition among baby-formula makers.

Dumex Investigation

Danone shares closed 1.2 percent lower at 56.75 euros in Paris trading yesterday.

Dumex has started a thorough investigation and a report will be available before Oct. 1, Athena Wang, a Shanghai-based spokeswoman for Dumex’s China unit, said by e-mail this week.

Dumex last week said it was “extremely shocked” by the initial Chinese media report on Sept. 16, which cited comments and documents from an unidentified former sales manager. Dumex adheres to Chinese laws and regulations and has set up a “strict management system, including severe punitive measures” for activities that violate Chinese laws and regulations, the company said in a statement last week.

In August, Danone was fined 172 million yuan by China’s top economic planning agency for fixing prices of milk powder. That prompted it to cut prices for its products in the Asian nation by as much as 20 percent.

China Crackdown

The French maker of Activia Yogurt and Evian water also issued a precautionary recall of its milk formula products last month after Fonterra Cooperative Group Ltd. said the items might have been affected by a contaminated whey protein ingredient.

Danone’s baby-nutrition sales will fall in the third quarter because the recalls had a “significant” effect on sales in Asia, the company said last month.

Danone is the third-largest baby formula company in China, with a 9.2 percent market share last year, according to industry researcher Euromonitor International. Mead Johnson Nutrition Co. (MJN) ranked first with a 14 percent share and Hangzhou Beingmate Group Co. was No. 2 with 10 percent, Euromonitor said.

China is cracking down on possible misbehavior by companies. In July, four senior GlaxoSmithKline Plc (GSK) executives were accused of crimes involving 3 billion yuan of spurious travel and meeting expenses as well as trade in sexual favors.

Sanofi and Eli Lilly & Co. were among drugmakers that subsequently said they were visited by Chinese regulators.

Alcon, the eye-care division of Novartis AG, said last week it is probing reports that its China employees paid doctors to boost sales.

To contact the reporter on this story: Liza Lin in Shanghai at llin15@bloomberg.net

To contact the editor responsible for this story: Stephanie Wong at swong139@bloomberg.net

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