Danone shares have surged more than 8% today as speculation emerged that fellow French dairy giant Lactalis is exploring a surprise takeover of its larger rival.
A report in French business publication La Lettre A said Lactalis advisors were considering options for a partial or total takeover of Danone but added the move would be complex due the size of the deal.
Shares in Danone jumped more than 8% in the early going as a result and are currently 5.8% higher at €55.75.
Investors also welcomed positive first-quarter results from Danone this morning as the Alpro and Actimel maker beat market expectations to continue its sustained recovery under new boss Antoine de Saint-Affrique.
A Danone spokeswoman said it had no plans to sell any of its three main divisions, while CFO Juergen Esser told analysts the group was working “very actively” to fix “under-performing assets”. “We will update you when there is something new,” he added.
Lactalis declined to comment.
Broker Bernstein said there was merit to a Lactalis tie up and a deal should not be dismissed.
Analyst Bruno Monteyne added the two businesses were highly complementary, with both operating in the dairy industry but with different end products.
Lactalis supplies liquid milk, cheese and butter, with brands including Président, Seriously cheedar and Galbani mozzarella, while Danone focuses on yoghurts and plant-based drinks, infant formula and water, with household brands such as Alpro, Actimel, Volvic and Evian in its portfolio.
Monteyne said it amounted to “a solid case for material scale benefits in source, manufacturing and distribution”.
“It would also provide revenue synergies for Lactalis in USA and China,” he added. “The lifeblood of any deal is ‘does it make sense economically’, and there clearly is a case here.
“A potential deal ought to get more airtime.”
He said it was less likely the government would oppose any deal with both companies being French.
Monteyne noted the obvious hurdle to a deal was size, with Danone having a market cap of more than €35bn and its annual revenues of €24m being larger than the €21bn generated by Lactalis.
However, he pointed out the rapid growth of Lactalis over recent years - fuelled by M&A, including the $875m acquisition of Danone’s US dairy arm in 2017 - made it the more valuable company, “by quite a margin”.
Monteyne suggested Lactalis could be valued at almost double Danone’s valuation if it were a listed company.
“If we combine that with potential disposals (e.g. waters, possibly some other small business units), this may be digestible with the help of a financial partner.”
He also added that, in private hands, there would be time to continue the recovery of Danone as well.
Danone is in the middle of a turnaround after underperforming in recent years and shares almost halving from 2019 highs of €82 under ousted former CEO Emmanuel Faber, who left the business in 2021 following a boardroom tussle.
New CEO Antoine de Saint-Affrique, who joined in September, outlined his turnaround plan at a capital markets day last month.
Part of his vision involved the potential to sell-off underperforming assets.
A recovery for the French group looked to have started at the tail end of last year, with Danone registering a 7% jump in sales in its final quarter, fuelled by a recovery for bottled water.
This morning, Danone reported a “good” start to the new financial year, with sales up 7% to €6.2bn as it benefitted from higher prices and strong growth for the infant formula category in Chine and North Asia, a continued resurgence for water and increases for the dairy and plant-based division.
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