Danone Acquires WhiteWave Foods in $10 Billion Deal

Soy Milk, Protein Shakes, Kale Added to Portfolio

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Emmanuel Faber's first big move as Danone's chief, after the $10 billion takeover of WhiteWave Foods Co., is a foray into soy milk, protein shakes and kale aimed at kickstarting growth at the French yogurt maker that's grappling with a drop in dairy consumption.

The Paris-based producer of Actimel drinks agreed to buy the U.S. company for $56.25 a share in cash, gaining leadership in the burgeoning natural and organic food sector through its biggest acquisition in almost a decade.

After spending his first year trying to revive sluggish sales in Danone's core European dairy segment, Mr. Faber is now expanding his portfolio to include a range of faster-growing, higher-margin items. They include the Silk brand soy beverage, cashew milk and soy yogurts that cater to more affluent and health-conscious consumers. The agreement is a victory for Douglas L. Braunstein and James C. Woolery, former JPMorgan Chase bankers, who prodded WhiteWave to consider a sale through their investment fund.

"The purchase will allow us to double the size of our U.S. business and become the world leader in organic," Mr. Faber, who joined Danone in 1997 and became CEO in October 2014, said. "I am convinced Danone is uniquely positioned to continue WhiteWave's development."

WhiteWave soared as much as 20% to $56.82 in early U.S. trading, exceeding Danone's bid, and analysts said it may attract other suitors. At a Paris news conference, Chief Executive Officer Gregg Engles said that in the four years that WhiteWave has been a public company, its high growth rate has made it the subject of deal speculation. He didn't say whether there were other bidders.

"With synergies likely at least as large for other strategics, and with debt financing cheap, we wouldn't be surprised to see competing bids emerge," John Baumgartner, an analyst at Wells Fargo, said in a note. WhiteWave will have to pay Danone $310 million to back out of the deal, according to a regulatory filing.

Danone rose 3% to 65.22 euros at 3:50 p.m. in Paris, paring an earlier gain of as much as 7.2%.

The acquisition would make Danone the global leader in fresh dairy and health-food brands including Horizon milk, Wallaby Organic yogurt and Earthbound Farm packaged salads as consumers increasingly shun processed foods perceived as unhealthy. The deal is the second potential takeover in the food industry in recent weeks, following Mondelez International's advance towards Hershey, which the chocolate maker snubbed. Both deals aim to beef up the acquirer's presence in the U.S.

In recent years, dairy milk's reputation as nature's perfect food has suffered as consumers question its nutritional merits as well as the environmental costs and treatment of animals housed at big industrial farms. The U.S. organic-food market expanded 11% in 2015 to $43 billion, while the overall food industry grew 3.3%, according to the Organic Trade Association.

Unit sales in Danone's fresh-dairy business have fallen for two years straight, weighed down by a slump in Brazil and declining demand in Russia and Europe.

"The key question to our mind is the real strength of the WhiteWave brands," wrote Jeff Stent, an analyst at Exane BNP Paribas. "To what extent has WhiteWave's success been less about the brands and more about first-mover advantage in a high-growth category. Time will tell."

Denver-based WhiteWave began trading in 2012 after U.S. dairy company Dean Foods spun off the unit, which was its most profitable business. Investors have speculated since then that the company would become an acquisition target.

Asked about WhiteWave on an earnings call Thursday, PepsiCo Chief Financial Officer Hugh Johnston said he wouldn't comment on specific companies. "But I can tell you we've looked at everything in the past, and if we were interested in anything, we would have acted upon it," he said.

Braunstein and Woolery announced in February that their firm, Hudson Executive Capital LP, had bought shares in six companies, including WhiteWave, with an eye to nudging them to take steps that would boost their stock prices. The investors said they wouldn't pursue proxy fights or publicly berate companies, preferring "constructive engagement."

Sales at WhiteWave will increase about 11% this year, based on the average of analyst estimates, after doubling since 2010 on rising demand for more healthful beverages and food, data compiled by Bloomberg show. North America accounted for 86% of the company's $3.9 billion in revenue last year, with Europe contributing the rest.

Growth like that doesn't come cheap -- Danone is paying about 26.2 times earnings before interest, tax, depreciation and amortization for WhiteWave, according to data compiled by Bloomberg. That's well above the median multiple of 14.8 times earnings paid by buyers in acquisitions of dairy companies over the past five years.

The WhiteWave purchase, to be funded through debt, will boost results in the first year after closing, the maker of Activia yogurt said. Danone expects a $300 million boost to operating profit by 2020. North American sales will be 22% of Danone's total revenue after the purchase, compared with 12% now.

"This deal should go through with the minimum of regulatory reviews," said Duncan Fox, an analyst at Bloomberg Intelligence. "There will be some minor overlaps in the U.S., which is 85% of WhiteWave's business, but Danone doesn't have anything of note within the key areas."

The purchase values WhiteWave at $12.5 billion including net debt and other liabilities. The companies expect to complete the deal this year. Lazard Ltd. advised Danone, while Goldman Sachs Group advised WhiteWave.

-- Bloomberg News

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