Danone (BN) is weighing the sale of its medical nutrition unit in a deal that may fetch more than 3 billion euros ($4.1 billion), according to a person familiar with the matter.
The maker of Nutricia and Cow & Gate formula and food for infants is working with JPMorgan Chase & Co. (JPM:US) on a potential sale, said the person, who asked not to be identified because the talks are private.
Danone, the world’s biggest yogurt maker, rose in Paris trading after Reuters reported the possible sale yesterday. The shares advanced as much as 1.7 percent and were up 0.7 percent at 50.40 euros as of 12:14 p.m. in the French capital.
Possible bidders include Nestle SA (NESN) and health-care companies such as Abbott Laboratories (ABT:US) and Baxter International Inc. (BAX:US), according to the Reuters report. Danone spokeswoman Charlotte Pasternak declined to comment. Nestle Chief Executive Officer Paul Bulcke declined to comment on whether the Swiss company is interested, in a Bloomberg Television interview.
Danone acquired Numico in 2007 for about 12 billion euros to become Europe’s biggest maker of foods for young children and gain a foothold in Asia and the Middle East. The purchase added Cow & Gate and other baby-food brands, as well as a division that makes foods for people with diets restricted by illness. Medical nutrition now accounts for about 6 percent of group revenue.
The chances of a deal getting done are high, according to Pierre Tegner, an analyst at Natixis Securities in Paris. Danone may seek to sell only part of the business, Jeff Stent, an analyst at Exane BNP Paribas in London, said by e-mail.
“Although we would be rather surprised if Danone were to exit its medical nutrition business, given the attractive structural growth nature of the industry, it is not something that we would completely rule out, given Danone’s frequent tendency to adjust the portfolio,” Stent said in a note.
Danone agreed yesterday to pay 486 million euros to more than double its stake in China Mengniu Dairy Co. to 9.9 percent as the nation’s demand for dairy products rises. The investment will help rebuild its presence in China, about four years after the Paris-based company sold its stake in a venture with drinks maker Hangzhou Wahaha Group Co. amid a dispute.
Sales at Danone’s medical nutrition unit, which includes Fortimel to counter malnutrition and Neocate, a hypoallergenic product for children, rose 5.6 percent in the first nine months of 2013 on a like-for-like basis to 994 million euros.
“If the company thinks it’s better to refocus its managerial and operational resources for the development and stabilization of its core business which faces several challenges in the short term, that can justify a divestment,” Tegner said.
Danone is the world’s third-biggest maker of tube feeding products with a 16 percent market share, behind Abbott with 30 percent and Nestle with 25 percent, according to Exane BNP Paribas estimates.
The maker of Activia yogurt and Evian water is scheduled to report 2013 earnings on Feb. 20. Analysts expect the company’s earnings before interest, taxes, depreciation and amortization to decline for the first time since 2006, according to the average estimate compiled by Bloomberg.
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