UPDATE: Danone Denies Speculation Regarding Mead Johnson
September 29 2009 - 4:14PM
Dow Jones News
French food and bottled-water company Danone SA (BN.FR) Tuesday
denied market speculation that it is in discussions with Mead
Johnson Nutrition Co. (MJN) or that it has hired any adviser or
bank to advise the company on the topic.
Earlier Tuesday, the Financial Times Alphaville blog reported
that Danone had hired investment bank Lazard to work on a possible
bid for infant-nutrition group Mead Johnson. Alphaville said the
takeover would likely cost Danone $12 billion.
Danone's shares fell after the report late in Tuesday's session
to close down 2.1% to EUR40.50, underperforming the French
benchmark index the CAC-40, which closed off 0.3%.
Kathryn Chieger, head of investor relations at Mead Johnson,
said the company doesn't comment on market rumors or
speculation.
Shares of Mead Johnson rose to a new high of $50.35 earlier
Tuesday, up 16% from Monday's close. As talk of a possible deal
with Danone faded, the stock was recently at $43.50, up 0.4% from
the previous close.
The stock started coming off its highs after CNBC's David Faber,
citing bankers close to both companies, reported that Danone might
be interested in making a bid for Mead Johnson if the latter's
majority owner, Bristol-Meyers Squibb Co. (BMY), were interested in
selling, but no such interest now exists.
A Bristol-Meyers spokesman had no comment.
The timing of a deal would have been quite odd and the price
would have been too high, an analyst commented.
"Danone would have had to sell something before buying as the
debt plus the Spanish put options would have possibly been
unmanageable," added the analyst, who wished not to be named.
Danone has EUR2.9 billion of financial debt related to put
options granted to minority shareholders in addition to EUR4.11
billion in net financial debt, as reported at the end of the first
half.
The analyst added that there is, nevertheless, strategic merit
in a tie up with Mead Johnson in the medium term as Mead Johnson
has interesting emerging-market exposure and presence in the
U.S.
"While we could see some strategic sense in such a deal for
Danone, we recognize a deal of this nature would significantly
stretch the Danone balance sheet if done all cash," JPMorgan
analyst Pablo Zuanich noted in an emailed statement. JPMorgan rates
Danone overweight.
In 2007, the French company sold its biscuits division and
bought Dutch infant and medical nutrition group Numico soon
afterwards, a crucial step on the road to becoming what Danone
describes the only food group totally focused on health.
With just over 19% of Danone's total EUR7.52 billion revenue in
the first half of this year, infant nutrition has overtaken bottled
water to become Danone's number-two division by sales, behind its
main dairy division.
Adding Mead Johnson's operations would increase Danone's global
baby formula share to 30% from 14% and it would leap frog
Swiss-based rival Nestle SA (NESN.VX), JPMorgan's Zuanich
noted.
Mead Johnson, Glenview, Ill., was formerly a wholly owned
subsidiary of Bristol-Meyers. The New York-based drug maker spun
off Mead Johnson in February, when the maker of infant formula and
nutrition products completed an initial public offering.
Bristol-Meyers has recently pursued a strategy of shedding
non-pharmaceutical assets, such as wound-care and medical-imaging
units, and using the proceeds and its cash hoard to build out its
drug pipeline and product portfolio.
Company Web site: www.danone.com
-By William Horobin, Dow Jones Newswires; +33-1-4017-1740;
william.horobin@dowjones.com