Forget Cookies, Think Baby Food
Which would you prefer, a shortbread cookie layered with dark chocolate -- or baby food? Despite your organoleptic preferences, Danone last week agreed to offload its LU cookie brand to Kraft (for about $7.2 billion) and then struck a $16.8 billion deal to buy Royal Numico, the Dutch baby food king. Many analysts expected that Danone would use the proceeds from its cookie sale to help fund the acquisition of Numico, which is well-positioned to grow on the rising platform of health and nutrition. And Numico's geographic markets provide a tailored compliment to the markets serviced by Danone's existing baby food brand, Bledina.
Dutch investors bid up Numico's stock price 11 percent before the deal was announced, placing a premium on the transaction. Most investors think Danone overpaid, and it's quite possible that Danone's credit rating will be downgraded as a result of the significant debt financing of deal. Nevertheless, Danone's chief executive is confident in the acquisition, saying, "the price Groupe Danone is offering today is a reflection of the outstanding quality and positioning of Numico as one of the world's leaders in healthy nutrition."
In the long run, Danone likely will come out on top with this deal. The global market for baby food is expanding faster than cookie sales, and Numico has a strong brand position (via its recent acquisition of the Dumex brand) in the booming China market as well as other east Asian geographies. And fortunately, Royal Numico doesn't come with any unwieldy venture partners.