Danone divests to protect nutrition ambitions

By Neil Merrett

- Last updated on GMT

Related tags Danone Groupe danone

Danone and Numico will be forced to offload some of their European
operations to go ahead with their planned merger into one of the
world's leading nutrition companies.

The European Commision announced on Wednesday that it had cleared Danone's acquisition of the Netherlands-based nutrition group under the condition that France-based dairy group sells it Belgian and Dutch infant nutrition operations.

Accordingly, Numico is required to divest its own infant nutrition business for both milk and formulas in France.

The ruling will pave the way for the creation of one of the world's leading manufacturers of nutritional food and beverage products, whilst highlighting the side affects of combining prominent operations in growing markets like nutrition.

Despite the significant size of the merged company, competition commissioner Neelie Kroes said the Commission was satisfied that the transaction would not be detrimental to keeping the infant food market in the bloc competitive.

"In view of the remedies offered, I am satisfied that competition will remain vigorous after the merger and that parents will continue to benefit from innovation and fair prices to feed their babies and toddlers," he stated.

To reach this opinion, the Commission examined the effects the merger of the two companies would have on the baby food and baby milk markets in Europe.

In particular the review highlighted possible problems in the bloc over key markets where both companies were currently operating.

In France, there was concern that Danone's shared market dominance with Nestle for production of infant nutrition goods would overlap with Numico's significant market share in the country.

The commission said that the Netherlands-based group's brands like Nutricia and Milupa were keeping the baby food and milk markets in the country competitive, and could therefore not be combined with Danone's respective operations.

There was also concern over how the merger would influence Belgium's market where the two companies operate as head-to-head rivals, while in the Netherlands, Numico would have removed one of its few competitors in the market from the deal, the Commision said.

To alleviate these worries, the Commision said that Danone had agreed to sell off Numico's France-based operations including branding, personnel and a production facility in the country.

Danone has also announced its plans for Belgium and the Netherlands, by stating its intentions to renounce licensing for popular brands like Blédina in the two markets, the Commission's report added.

Once these conditions for divestment are met, Danone will be free to continue with its merger plans.

The France-based company made a proposal to acquire Numico for €55 per ordinary share in cash on July 9, amounting to a total of €12.3bn.

The move is expected to propel it into a top three spot in major markets for nutrition and infant products.

Danone followed up on the proposed offering by going ahead and acquiring 29.57 per cent of outstanding shares in Numico on the market.

It will hold 100 per cent of the specialised nutrition company - which holds a leading position in baby food and clinical nutrition - when the deal is closed.

The companies said in August that they were making "good progress" towards the public offer.

The proposal has the unanimous acceptance of Danone 's supervisory board and Numico's executive board.

Danone has said its focus will remain on dairy, which is expected to account for 51 per cent of sales, beverages 27 per cent share, and nutrition, the new "third pillar", 22 per cent.

Danone has said it will retain Numico's existing business structure in order to maintain profitability.

Numico last year posted profits of €483m, and posted operating profit margins of 18.4 per cent.

Danone's chairman Franck Riboud said in July that acquiring Numico would allow the company to move ahead of its rivals within the competitive marketplace.

"The combination of the two groups will create a unique food company - the one with the clearest and most powerful health positioning in the world," he said.

"With this project, we are designing a new Groupe Danone, enhancing dramatically its growth profile and its growth potential for the years to come."

Groupe Danone certainly not the only major food firm taking a big stake on health and nutrition.

For instance Nestle, the world's largest food company, has had a nutrition division for a number of years and an on-going programme of research which involves partnering with ingredients firms and research institutes to develop new nutrition technologies.

As for Danone's rationale in taking the health and nutrition route, Riboud cited an ageing population, growing awareness of the importance of nutrition to health, and the rising costs of medical care as key factors that would continue to drive consumer demand for healthier products in developed markets.

This year Danone announced that it is exiting the biscuit business by selling that arm of its business to Kraft for €5.3bn, part of a plan to focus on dairy and nutrition.

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