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Activists Will Help Realise The Potentially High Danone Multiple

Apr. 06, 2021 2:47 PM ETDanone S.A. (DANOY)4 Comments
Mare Evidence Lab profile picture
Mare Evidence Lab


  • Major developments have set a promising tone for Danone's medium-term future.
  • Sustainability-focused CEO Faber got the axe after years of service, with activists making way for more aggressive CEOs who can realise the business' value.
  • Selling of the Chinese unit represents a start to the activist's attempt to achieve multiple expansions.
  • Given the weight that Danone felt under COVID relative to other consumer products companies, the move spells performance much more in line with the value in the business segments.

Danone (OTCQX:DANOY) has the profile of a stalwart. Not only are its brands well known, but it's diversified into new, excellent segments that through organic growth have developed into leadership in niche categories against even the largest consumer products giants. Yet Danone has languished, and its less flexible structure and financial profile in COVID-19, largely due to decisions by its CEO, has stunted any kind of recovery as investors took the March 2020 fire sale as an opportunity to allocate funds elsewhere. The firing of the CEO should bring on a new regime, although the fact that Danone is a French company will surely get in the way. On balance, however, we continue to see the upside in Danone.

Several Growth Engines

The reason why activist involvement is so helpful for a company like Danone is that it has several underlying growth engines that could easily convince a high multiple. We have written previously at length about the specialty nutrition business, which is highly profitable with economics akin to pharmaceutical companies. While multiple expansion from this segment is also going to be a factor in Danone's revaluation, since it is indeed so significant a part of their business, there are also other engines that contribute to Danone's superior profile. WhiteWave and Alpro, companies taken under the Danone wing along the sustainability approach that Danone was long focused on, are great growth engines, and are tapping into the very trendy markets of organic and vegan food. These businesses which form an important part of what used to be classified as Danone North America, are a big driver of performance in the EDP category. What is more is that these companies were acquired long before it became duty for consumer products companies to cater to these markets.

(Source: Danone Q4 2020 Earnings

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Buy-side hedge professionals conducting fundamental, income oriented, long term analysis across sectors globally in developed markets. Please shoot us a message or leave a comment to discuss ideas.DISCLOSURE: All of our articles are a matter of opinion, informed as they might be, and must be treated as such. We take no responsibility for your investments but wish you best of luck.

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Comments (4)

Very little of activist investors Artisans restructuring plans have come to light thus far. Possibly in order not to interfere with the CEO search. Its good to see shareholder activism finally arrived in France.
@Mare Evidence Lab
am not sure the CEO needed to depart, nor it is obvious what 'special' capital allocation changes an activist can make (not that they cant manufacture some shuffling and financial engineering, but they cannot present odds-weighted likelihood of sustained success beyond their own exit).
yes, danone has underperformed. but as you noted, most of the past strategy has been good, and they just need to hold their own and ride 2 tailwinds :
- they are in almost every global ESG grouping/index
- global demand for better-than-generic products (just like nestle, etc...)

i also dislike the water business, but do not see non-home consumers going back to water fountains, despite all the evidence. maybe this is a window for them to offload it.
in the end, i see danone as a sensible alternative to holding less cash.
All depends on whom they choose as next CEO
Clamhead60 profile picture
I think you hit the nail on the head Danone has a great collection of brands but is and always will be a French company that is run more for France/ the family than shareholders. This problem is not new rather it's been going on for decades. While I am encouraged that Faber was shown the door I'm not confident that any substantive changes will occur. Time will tell.
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