Danone Committed to All Business Units -- Update

By Ruth Bender 

PARIS-- Danone SA said it is keeping its medical-nutrition business, after months of talks with potential buyers that gave rise to speculation that the French yogurt maker could be embarking on a bigger deal in its quest to revive growth.

The owner of Activia yogurt and Aptamil baby formula on Friday said all of its four units play a crucial role as the company tries to bounce back from a series of problems that have hampered sales and profit growth in some key markets.

"...Each of our core businesses--fresh dairy products, waters, early life nutrition and medical nutrition--has a role to play in living up to our mission and achieving the profitable, sustainable growth that is an integral part of our strategy," Chief Executive Emmanuel Faber said in a statement.

Danone's pulling of the sale comes after months of speculation over its mergers-and-acquisitions strategy. In recent months, Danone has held talks with several interested potential buyers of its medical-nutrition business, including German health-care group Fresenius SE & Co., which teamed up with buyout firm Permira, according to people familiar with the matter.

"We are keeping this business," said Laurent Sacchi, adviser to the group's chairman and secretary of the board, which met Thursday to discuss the group's current situation. "Danone decided it can get the best out of the business."

The company, known also for Evian water, has been considering options to ensure its long-term growth, including whether it should pursue any larger deals or tie-ups, people familiar with the matter have said. Analysts speculated that Danone could use the proceeds from a sale of the medical-nutrition business to try to buy a larger company such as U.S. baby-food company Mead Johnson Nutrition Co., but Danone recently said it hadn't discussed or decided on such a move.

Signaling that it has ambitions elsewhere, Danone said it has created a new Africa unit and named current Chief Financial Officer Pierre- André Térisse to head it. Danone said it wants to accelerate its expansion in Africa, a region that generates around EUR1.2 billion ($1.5 billion) in annual sales, or around 6% of its total sales.

Danone has been trying to bounce back from a series of problems, starting with the effects of the economic crisis in Europe, followed by a food-safety warning in Asia, milk-price inflation, and geopolitical tension between Russia and Ukraine.

Sales growth started rebounding again in the third quarter following efforts to regain market share in China, where sales fell dramatically after Danone had to pull thousands of products due to a safety warning from a large supplier that later turned out to be a false alarm.

But Danone won't be finishing the year on a high note.

The company slightly lowered its targets for the current year. Danone now targets organic revenue growth of "over 4.5%" in 2015 compared with a previous goal of between 4.5% and 5.5%. Its operating margin should fall less than 0.2 percentage points, Danone said, the lower end of its guidance range.

Mr. Faber, formerly Danone's deputy CEO, replaced longtime CEO Franck Riboud on Oct. 1. In a new sign that the company is off to a fresh start following the change, Danone promoted company insider Cécile Cabanis to replace Mr. Térisse as CFO starting in February and named Gustavo Valle, who has headed the group's European business, as head of its largest unit, fresh dairy.

Write to Ruth Bender at [e-mail]

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