Danone Offers $16.76 Billion for Numico

A week after agreeing to sell its biscuit business to Kraft Foods for €5.3 billion, Groupe Danone has inked a deal to buy Dutch baby formula and nutritional bar manufacturer Royal Numico NV for €12.3 billion (€55 per share, or $16.76 billion). The price represents a 38% premium to Numico's Friday close. Numico holds 40% of the European formula market. The purchase is viewed by some analysts as an attempt by Danone to reduce its cash on hand and thereby reduce its attraction to companies that might have viewed it as a takeover possibility following the biscuit sale. It also vaults Danone into the position of a global operator in baby food and clinical nutrition (foods designed for the elderly or sick). "Numico has all the characteristics we like: health orientation, extremely good research and development, market leadership and exposure to high-growth markets," said Danone CFO Antoine Giscard d'Estaing. Numico is forecasting 10-12% sales growth in 2007 and its clinical-nutrition business has been growing about 11% every year since 2003, according to the WSJ. The company expects the acquisition to boost EPS by 3-4% next year. The purchase follows Nestle's agreement in April to buy Novartis's Gerber brand for $5.5 billion, a deal that will give the food giant an 82% share of the U.S. baby formula market.

Sources: Wall Street Journal, Bloomberg, MarketWatch
Commentary: Kraft Offers $7.2 Billion for Danone Cookie Unit • 4 Dairy Stocks To Watch
Stocks/ETFs to watch: Groupe Danone [ADR] (GDNNY.PK). ETFs: PowerShares Consumer Goods ETF (PRFG), Consumer Staples Select Sector SPDR (XLP), Ultra Consumer Goods ProShares (UGE)

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