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$12.5 billion U.S. Organic Food Deal Helps in Expansion of Danone

$12.5 billion U.S. Organic Food Deal Helps in Expansion of Danone
Through the buying organic food producer WhiteWave Foods Co in a deal that values the company at $12.5 billion including debt, France's Danone hopes to double the size of its U.S. business, the company said recently.
The purchase would help the French company to add WhiteWave's popular health food offerings such as Silk almond milk and Earthbound Farm Organic salad to its portfolio and this would allow it to pursue affluent consumers even as the company struggles with setbacks in some of the more challenging markets such as Brazil and Russia.
Emmanuel Faber, the chief executive of the French company, has vowed to return the group to "strong profitable and sustainable growth" by 2020 and this is the first major transaction by Faber who took over as Danone's chief executive in 2014.
Danone is offering $56.25 per share in cash to WhiteWave Foods Co for its largest acquisition since the purchase of Dutch group Numico in 2007. Danone is best known for its yoghurts Activia and Actimel.
The French company said that compared to WhiteWave's 30-day average closing trading price, the offer represents a 24 percent premium.
"We are creating a truly global leader in line with lasting consumer trends for more healthier options," Faber told a call with analysts.
Following positive attitude from investors who welcomed the deal despite the premium being paid, the shares of Danone were up 6 percent at 67.15 euros, leading gainers on the CAC-40 index of French blue chips.
The products of WhiteWave are in line with a consumer shift toward natural foods and healthier eating and hence the company’s products have outperformed mainstream packaged food businesses in recent years.
With respect to companies like General Mills and Campbell Soup that have been buying healthier brands or reformulating their existing products, analysts have long viewed WhiteWave to be an attractive takeover target since its spin-off from Dean Foods.
"WhiteWave is the fastest growing U.S food company (10 percent Compounded Annual Growth Rate like for like sales over the last 3 years, 20 percent including acquisitions) and an excellent fit with Danone, focusing on organic, dairy foods," said Canaccord Genuity Limited analysts.
Representing 8 percent of WhiteWave's 2015 sales and 80 percent of WhiteWave 2015 Earnings Before Interest and Taxes, Danone said it will be able to achieve synergies of $300 million by 2020. WhiteWave generates $4 billion of sales.
The boards of both the companies recently approved of the deal which is expected to boost earnings per share from the first year after closing and which will be 100 percent debt financed.
"This transaction will create a leading U.S. refrigerated dairy player, as well as one of the top 15 largest U.S. food and beverage manufacturers," Danone said.
From 12 percent of the total portfolio of Danone, the company’s North America business will increase to 22 percent of its portfolio after the completion of the deal expected to get over by year-end.

Christopher J. Mitchell

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