WHY YOU SHOULD READ THIS REPORT
Investor interest in what the recent shift in the French political landscape may mean for Danone appears to be
increasing. Keeping this in mind, with this report we explain why we believe that longstanding investor wisdom
that Danone is immune from a take-out is no longer valid and critique potential suitors.
Danone: no longer immune from a take-out
Investor interest in what the recent shift in the French political landscape may mean for
Danone appears to be increasing. Keeping this in mind, in this report we outline our
assessment of the situation and critique potential suitors.
Dairy players are too small and Nestle would face too much anti-trust
Analysing the Dairy industry, we draw a blank through size. Nestle aside, Danone simply
dwarfs all of the other Dairy industry incumbents. As to Nestle, we very much doubt whether it
would have interest and in any case, it would face material anti-trust issues.
Danone makes sense for Kraft Heinz and it could afford a large premium
Danone would make sense for Kraft Heinz for it would enable it to acquire a relatively cheap
under-earning asset, with poor short-term but good long-term growth credentials. Ring any
Unilever bells? While a Kraft Heinz approach would likely be as welcome to Danone as it was
to Unilever and we struggle to envisage a hostile offer, the relatively extreme valuation of
Danone presents an opportunity for Kraft Heinz to offer a large premium. Doing so would avoid
one of the key failures of Kraft Heinz’s Unilever approach (offering a modest initial premium).
Acquisition of Danone would help both PepsiCo and Coke to keep 3G Capital at bay
Leaving Kraft Heinz aside, to our mind the only other credible suitors are PepsiCo and Coke.
While both typically focus on bolt-on acquisitions, Danone would make sense for both. Most
notably, acquisition of Danone would facilitate B/S re-leverage and thus help to keep 3G
interest at bay.
Danone embeds no acquisition premium, we believe this is wrong
While we believe that the probability of a Danone take-out is not high (we put it at 20%), its
current share price embeds nothing for such an eventuality.
We revise our estimates to reflect updated FX translation
With this report we revise our FY17e/FY18e/FY19e EPS by -3% due to updated FX translation.