Groupe Danone might gain the upper hand in its negotiations with the Wadia group when the two partners meet in late-August to resolve their differences.
The advantage could translate into Groupe Danone buying the Wadias's stake in Wadia BSN, the 11-year-old venture between the two groups, and hence pave the way for Groupe Danone doing business on its own in India.
Both partners are discussing their issues under a confidentiality agreement that prohibits them from sharing the progress in discussions with a third party.
According to the deadlock clause in the Wadia BSN joint venture agreement that was made in 1995, if both partners do not arrive at a consensus on operational issues at the expiry of three months of discussions, it would lead to a deadlock.
As both partners first met in end-February in London to resolve their differences, it leads to a clear case for a deadlock, say experts.
The agreement says that issues that could lead to a deadlock include sale of business, encumbering of assets, launch or abandoning of a product in contradiction with the agreed business plan, among others.
In case of a deadlock, the agreement says, "Groupe Danone can be entitled and obliged to purchase or cause a third party to purchase and the Wadia group shall be obliged to sell all the shares of Wadia BSN held by it, provided beforehand Groupe Danone has proposed to the Wadia group to acquire at least one business, if any are in existence at that date."
Groupe Danone's entitlement is subject to the fact that it has given a notice to that effect to the Wadia group company, Bombay Burmah Trading Corporation, within 30 days of the deadlock arising.
Wadia BSN India limited was a joint venture set up in 1994 with plans that included the introduction of packaged foods from Danone's international range into the Indian market.
In case any of the partners wanted to enter a new business opportunity it had to be through the joint venture, unless the joint venture decided to reject the business opportunity.
Also entering a business that competes with any subsidiary of the partners was prohibited under the agreement.
In case both the companies do not arrive at a consensus within 30 days on the appointment of an international audit firm to decide the "fair market value" of the stake sale, then the president of the Institute of Chartered Accountants of England and Wales will appoint the audit firm.
The two companies have been negotiating since mid-February to solve a variety of issues ranging from Danone's investment in a Bangalore-based bio-nutritional firm, intellectual property issues over the glucose biscuit brand, Britannia Tiger and the Wadia group objecting to Danone's application to do business on its own in India.
