Deals
Danone targets dairy growth with Russia deal
Danone (DANO.PA) and Unimilk (KUNMI.RTS) plan to merge their fresh dairy businesses in Russia, Ukraine, Kazakhstan and Belarus as the French food group seeks to expand its core division in growth markets.
Danone would hold 57.5 percent in the new entity, which is expected to have annual sales of about 1.5 billion euros ($1.8 billion). Russia's Unimilk will hold 42.5 percent.
Danone-Unimilk will have around 21 percent of the Russian market and will be the leader for dairy products in the Commonwealth of Independent States (CIS), Danone said on Friday.
"The CIS is a group of countries where the potential penetration and growth of the category both in terms of volume and value ... is among the most significant," Danone Finance Director Pierre-Andre Terisse said.
The transaction is expected to close toward the end of the year and would boost Danone's earnings per share from 2011, the company said.
The deal would increase Danone's net debt by 1.3 billion euros, mainly because of "put" options given to Unimilk shareholders allowing them to dispose of part or all of their shares in the new entity, Danone added.
Unimilk said it plans to invest together with Danone at least 500 million euros in the joint venture over the next five to seven years.
Danone, meanwhile, will rethink its options for its 18 percent stake in Russian juice and dairy maker Wimm-Bill-Dann (WBD.N), Terisse told a conference call with analysts. Wimm-Bill-Dann said separately it was ready to buy the stake.
Strategic interest
Terisse said the potential development of the fresh dairy products category in Russia and the CIS countries was very high. The two groups' geographical presence, product ranges and distribution networks are complementary, he added.
In a research note, Oddo Securities analysts wrote the deal was "a strategically interesting merger for a limited price," giving Danone scale in a key emerging market. Danone generates more than half of sales from its dairy business.
They added: "The success of Danone in Russia in fresh dairy products had already significantly reduced the need for their (Wimm-Bill-Dann) stake and with Unimilk we can consider that Danone is clearly on its way out."
The Unimilk deal would initially negatively impact group margins, Terisse said.
"This impact reflects the current low level of profitability of Unimilk both versus the average margin of the group and versus Danone dairy in Russia," he said.
"The merger will, however, generate significant synergies and the joint venture is expected to reach the current level of operating margin of Danone Russia within three years, that is by 2013," Terisse added.
The transaction will be carried out mainly through a contribution of assets, supplemented by a purchase of shares by Danone, the French company said.
Unimilk posted sales of 969 million euros in 2009, Danone said in a presentation. It has 28 production facilities operating across Russia, Ukraine and Belarus.
Danone shares were up 0.7 percent at 44.42 euros by 0838 GMT, against a STOXX Europe 600 food and beverages index .SX3P up 0.4 percent.
(Published by Reuters – June 18, 2010)