Paris: French group Danone, whose LU cookies have accompanied the snacks of generations of French children, said on 4 July it is in exclusive talks with US rival Kraft Foods about the sale of its biscuit unit for 5.3 billion euros ($7.2 billion).
Danone shares, which had been suspended ahead of an announcement from the company, jumped 3% on the Paris exchange to 62.78 euros shortly after trading resumed on an overall market that was 0.83% stronger.
The French group confirmed reports that it had received an offer from Kraft for operations that generated annual sales of about 2.0 billion euros from 20 countries.
In addition to LU cookies, Danone also markets the Prince and Tuc brands. The Danone statement said the deal under consideration does not include the company’s interests in the Bagley biscuit business in Latin America nor Britannia in India. Kraft’s biscuit division includes Oreo cookies and Ritz crackers.
“This transaction will give the group an opportunity to focus on the rapid expansion of its activities in two health-related areas: fresh dairy products and beverages based on source and mineral water,” said Danone chairman Franck Riboud.
Danone said a final agreement between the two companies could be signed in the last quarter of 2007, adding that Kraft Foods had agreed that it would not close any industrial site in France for three years following the signature of an accord.
At brokers Fideuram Wargny analyst Guy Francheteau said “the timing of the deal seems right for getting the optimum price from Kraft” at a moment when Cadbury of Britain is also re-focusing its activities after the sale of its drinks unit and as United Biscuits, another British group, is targeting the same market as LU.
“What remains to be determined is the attitude of Brussels (the European Commission) and other competition authorities in Europe as well as the ‘economic patriotism´ advocated in the past by French politicians to defend Danone’s assets,” he added.
The sale of the biscuit unit would also re-ignite speculation on the possibility of an overall bid for Danone by some of its rivals, such as Pepsico or Nestle, according to analysts at CA Chevreux.