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WBD: Will the sales take place?

09-Oct-2003

Shareholders in Wimm-Bill-Dann may seek to profit from their investment by selling their shares to French group Danone, claims a press report today.

The persistent rumours surrounding a possible acquisition of Russia's Wimm-Bill-Dann by French dairy group Danone have surfaced again today with the publication of a report in the Financial Times newspaper.

The British paper claims that Danone could be in control of the dairy products, fruit juice and bottled water business by the end of the month - although neither company was available for comment on whether these rumours were true.

Danone has around 7 per cent of WBD already, and has frequently been linked to a possible buyout of the rest of the company. The most recent rumours , from earlier this year, were fuelled by Danone's chairman Franck Riboud, who said that the company hoped to increase its share of the Russian dairy market to 20 per cent by 2008 - a move which would clearly be facilitated by the acquisition of the market leader.

WBD, which is currently valued at around $900 million (€761m), would give Danone a major foothold in the Russian dairy market, as the company's success has been built in no small part on its nationwide coverage - it is one of the few companies in the dairy sector to have production and distribution operations throughout Russia.

The FT report suggests that Danone would not be as interested in WBD's juice and bottled business as it would the dairy arm - despite Danone's own strong presence in the bottled water sector through the Evian and Volvic brands, among others. Certainly it would be easier for Danone to manage the WBD business if it were focused solely on the dairy sector, but the success of the company's drinks business over the last few years suggests that this would be an area of growth for the French company as well.

The report suggests that despite the willingness of many of WBD's shareholders to consider selling out to Danone - the company confirmed in June that a group of shareholders thought to represent around 60 per cent of its capital were engaged in preliminary talks with the French firm - the deal has been delayed as a result of a disagreement over the price.

WBD has been highly successful in expanding its operations in recent years, but the Russian market is still a fickle place to do business, and some analysts believe that the company's shares are overpriced given the uncertainty over future profitability. The Russian market cannot sustain high prices, according to the FT report, and this makes it harder to generate profits.

But it is this uncertainty over the share price which could lead to a deal being concluded in the next few weeks, with WBD shareholders keen to offload their shares while they are still valued at a premium, the paper said. Uncertainty caused by the imminent elections in Russia (due in December) could cause the shares to drop in value, and investors will look to sell them before this date, the FT claims.

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