Danone Rides the Organic Wave

French yogurt maker offers to buy WhiteWave Foods for $56.25 a share in cash

Source: Company's Website
Source: Company’s Website

Paris-based Danone S.A. has strategically shifted its center of gravity from yoghurt to organic foods; the Company has agreed to buy The WhiteWave Foods Co. (NYSE: WWAV), a U.S.-based producer of organic foods brands, including Horizon Organic milk, Wallaby Organic yogurt, and Earthbound Farm packaged salad, as reported by The Wall Street Journal on July 7th, 2016. The Paris-based producer of Actimel drinks and Evian bottled water agreed to buy WhiteWave foods for $56.25 a share in cash, or approximately $12.5 billion including debts of $2.5 billion, representing a 24% premium to WhiteWave Foods’ stock over the past month.

Danone’s potential buyout, the biggest in almost a decade, would propel the Company to a leadership position in the high growth natural and organic foods industry and more than double its North American revenue. The potential deal marks Danone’s foray into organic and wellness products like soy milk, protein shakes and kale, aimed at boosting growth as the Company faces a drop in dairy consumption in key markets. The deal is pending shareholders’ approval, and has already been approved by both firms’ boards. If it moves forward, the transaction is expected to close by the end of 2016.

Danone’s buyout of WhiteWave Foods is the first and largest buyout since Emmanuel Faber took over as CEO in October 2014. Under Faber’s tenure, Danone has focused on sustainable growth, partly by restructuring its business in China and overhauling its fresh-dairy unit. The U.S. market will now count for a fifth of Danone’s sales, a significant realignment as the Company braces for a potential slowdown in Europe in the aftermath of the Brexit.

Source: Company's Website
Source: Company’s Website

WhiteWave Foods, based in Denver, Colorado, has been one of the fastest-growing companies in the U.S. food industry in recent years, propelled by the rising demand for organic and healthy foods. In contrast to large food companies, WhiteWave Foods’ product sales are growing by double-digit percentages. The Company reported net profit of $168 million on revenue of $3.9 billion in FY15.

Danone, whose portfolio includes the Actimel and Activia brands, recently raised its FY16 guidance; however, the Company has been faring poorly in emerging markets such as Russia, Brazil, and Asia, where a 2013 product recall has hit sales. Danone is also looking to reduce its exposure in the European market, where sales of fresh dairy produce is steadily shrinking. With the potential acquisition of WhiteWave Foods, North America would account for about 22% of Danone’s revenue, up from the current level of 12%, giving it more teeth to compete with rivals such as Nestlé S.A. and Unilever in the U.S.

Deal financing

Danone will finance the deal with debt and expects to increase its operating profit by $300 million by 2020. The Company reported operating profit of €2.21 billion and global revenue of €22.4 billion in 2015. Lazard Ltd. (NYSE: LAZ) was the advisor to Danone which would pay for the possible deal with financing from BNP Paribas and JPMorgan Chase & Co. (NYSE: JPM). The deal also includes a $310 million termination agreement and gives Danone the right to match any counterbids in the future.

Deal implications

The possible deal has big implications for Danone; the merged entity would be the largest buyer (by tons) of organic milk in the U.S., including the Stonyfield, Horizon, and Wallaby brands. While the total volume of milk sold in U.S. retail between 2010 and 2015 has declined by 13%, organic milk has increased by 22.5%, according Euromonitor, and as reported by The Wall Street Journal. WhiteWave Foods’ Horizon is the biggest milk brand in the U.S. market with a 5.4% share, and dominates the organic milk market with a 25% share, according to Euromonitor, and as reported by The Wall Street Journal.

Potential deal triggers consolidation in food industry

Source: Organic Trade Association
Source: Organic Trade Association

The potential Danone-WhiteWave deal is the latest in the food industry, which has been witnessing massive consolidation. Food giants, hit by the consumer backlash on packaged and processed goods, have been acquiring industry upstarts that are into natural and organic foods. Sensing the shift in eating habits of health-conscious consumers, even traditional packaged-food companies are acquiring smaller health food companies to include natural and organic foods in their products basket. Organic food sales have more than tripled over the past decade and increased 11% in 2015 to $35.9 billion, according to the Organic Trade Association, and as reported by the Financial Times on July 7th, 2016.

Stock Performance

D4The WhiteWave Foods Company’s stock stood at $56.64, rising 0.73%, at the close on Friday, July 8th, 2016, having vacillated between an intraday high of $56.65 and a low of $56.23 during the session. The stock’s trading volume was at 10,559,677 for the day. The Company’s market cap was at $10.02 billion as of Friday’s close.

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