Kraft to buy Danone biscuits

By Charlotte Eyre

- Last updated on GMT

Related tags: Danone, Kraft foods

Kraft Foods today offered €5.3bn for Danone's
biscuit and cereals divisions, which generate about €2bn in sales
annually.

The move will consolidate Kraft's number one position as the world's top biscuit maker. It will acquire Danone brands such as LU, Tuc and Prince. Danone holds the number two spot. The offer does not include Danone's stakes in biscuits businesses in Latin America or India, and could lead to a definitive agreement during the last quarter of 2007, the companies said. "This proposed acquisition makes great sense for Kraft,"​ said Irene Rosenfeld, Kraft chairman and chief executive officer. "This growing, high-margin business will give Kraft another core growth category in Europe, a cornerstone for faster growth in emerging markets, and the best portfolio of iconic biscuit brands in the world,"​ Rosenfeld said.​With the acquisition, Kraft will access to critical emerging markets such as China, Russia, Poland, Indonesia and Malaysia, which will account for 25 per cent of business, and the company also will establish footholds in Malaysia and Indonesia, she added. Georges Casala, who currently runs Danone's biscuit business, will manage the company's entire EU biscuit business, including Kraft's recently acquired Iberian biscuit brands and operations. Kraft has promised tokeep Danone's biscuits division in Europe as a distinct unit based in France. Kraft has also said it does not intend to announce the closing of any of the acquired biscuit manufacturing plants in France for at least three years after the transaction is signed. In a statement today Kraft was keen to stress that it will keep the European headquarters of the biscuit business will remain in the greater Paris metropolitan area for the foreseeable future, and it will not close any of the Danone biscuit manufacturing facilities in France for at least three years after the agreement is signed. However, a successful acquisition on Kraft's part is likely to cause unease in France. The company has already been the focus of French nationalistic concern, especially after whispers that American company PepsiCo wanted to buy Danone in 2005. The rumour prompted the French government to launch a campaign protecting 20 designated French companies, including Danone, which they termed a 'national champion.' Protectionist-minded ministers feared loss of French jobs to what they viewed as a 'hostile takeover', and an attack on their national identity. Les Echos, a French subsidiary of the FT, warned this morning that Danone have already closed two factories in France, and three others in Europe, since 2001. The Financial Times suggested that a sale would be good for Danone, allowing it to focus on its more dynamic and dairy divisions, as its biscuit and cereal sales are growing at a slower rate. Kraft had worldwide biscuit sales of $5bn in 2006, while Danone's biscuits and cereal products business is the smallest and slowest-growing of its three arms, according to company figures. It had a turnover of €2.2bn ($3bn) in 2006, and experienced 3 per cent growth. The dairy and beverage divisions on the other hand have seen 10 and 11 per cent growth respectively, FT reports. According to the newspaper, there is now speculation that Danone has its own acquisition plans, and it may target Wimm-Bill-Dann, the Russian dairy and juice group, and Numico, the Dutch baby food and nutrition company. Selling the biscuits business could raise €3.5bn, the FT said. FT analysts speculate that Danone's biscuit division has been a cash cow, so its disposal was unlikely unless an acquisition was being considered. Danone could sell Numico's clinical nutrition business to partly fund the deal, leaving it with the baby-foods business, the FT said. Danone shares rose 1.6 per cent to close at €60.95 yesterday, while Numico shares rose 2.6 per cent to €39.53. Kraft Foods is the latest target of activist investor Nelson Peltz, who recently purchased a three per cent stake in the company. He is rumoured to be using his power to make big changes within the company, encouraging the brand to sell its Post cereals and Maxwell House brands, according to the FT. Peltz also has a three per cent stake in Cadbury, where he has made many organisational alterations over recent months, including the sale of US beverage division and acquisitions in the Turkish and Romanian markets.

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