Sector News

Danone says will keep Medical Nutrition business

December 12, 2014
Food & Drink
(Reuters) – Danone said on Friday it would keep its Medical Nutrition division, ending months of speculation the world’s largest yoghurt maker was trying to sell its smallest business to raise cash for acquisitions.
 
The maker of Evian water and Activia yoghurt said the division, which makes tube feeding products and baby food, was a key part of its growth strategy despite earlier indications it was ready to sell a business worth an estimated 4-5 billion euros ($5-6.2 billion).
 
“Each of our core businesses – Fresh Dairy Products, Waters, Early Life Nutrition and Medical Nutrition – has a role to play,” Chief Executive Emmanuel Faber said.
 
Board secretary Laurent Sacchi told Reuters: “We are keeping this business.”
 
Danone slightly adjusted its financial goals, guiding that they would be towards the lower end of the previous target range. Analysts said this was not surprising but shares dipped 1.7 percent to 54.45 euros by 1055 GMT.
 
A Medical Nutrition sale could have helped Danone focus on baby food, dairy and bottled water and expand in emerging markets to counter weak growth in Europe.
 
Danone could also have used proceeds to help fund a takeover of U.S. infant formula maker Mead Johnson Nutrition Group , a deal that sources have said it wants to pursue.
 
“Danone probably didn’t get the amount it wanted and may have been reluctant to have a big write-down on the asset given it is valued around 4.5 billion euros on the books, according to our estimates,” Kepler Cheuvreux analyst Jon Cox said.
 
Having invested around 3 billion euros in the last two years in Asia and Africa, Danone cautioned that a rise in debt could result in a “one-notch” drop in its credit rating.
 
Some analysts expressed relief that the company appeared not to be planning more heavy spending.
 
“The retention of the Medical Nutrition might be seen by some as negative,” RBC Capital Markets analysts wrote. “However, the more positive implication for us is that a major acquisition appears less likely.”
 
Danone bought the medical nutrition unit as part of the 12.3 billion euros acquisition of Dutch baby food company Numico in 2007. With 2013 sales of 1.3 billion, or 6.3 percent of group sales, it is Danone’s smallest business.
 
By Dominique Vidalon (Additional reporting by Noelle Mennella; editing by Ingrid Melander and Keith Weir)

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