Danone increases WBD stake

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A spokeswoman for Russian dairy and fruit juice group
Wimm-Bill-Dann reports that France's Danone recently increased its
stake in the company. An indication that WBD's policy of rapid
expansion is the right way to go?

French dairy and bottled water group Danone has increased its stake in the Russian dairy group Wimm-Bill-Dann from 4 per cent to 6.24 per cent in an operation which took place on 15 September.

A spokeswoman for the Russian dairy and juice company, whose shares are listed on the New York Stock Exchange, told reporters earlier today that the stake cost the French group some $17.5 million (€17.9m).

Danone first acquired its stake in the Russian group, which has also been linked to a possible takeover bid by Nestle in recent years, when the company was first floated on the NYSE in February, since when it has been pursuing a policy of rapid expansion.

Earlier this month the Russian firm announced that it had lifted its revenues by some 21 per cent in the first half of 2002 as a result of expanding its operations from its traditional Moscow base into other parts of the country and indeed neighbouring states, not only opening up new markets but also helping to create economies of scale.

But this expansion, which included the acquisitions of the St Petersburg-based Roska group for $11.7 million in August and of the Kharkovsky Dairy Plant in Ukraine for $4.5 million in July, has come at a price, with profits dropping 3 per cent in the half to $22.4 million.

The decline in profits was only to be expected following such a rapid expansion - the company now has 19 processing plants throughout the region - and WBD still remains an attractive investment possibility for any of the major European or international dairy groups, with Danone and Nestle, two of the biggest, the obvious leading contenders.

Danone has declined to comment on the announcement that it has increased its stake, and WBD reacted angrily earlier in the year to suggestions that it was on the verge of selling out to Nestle, so it is perhaps premature to talk about a takeover, but the major dairy players will undoubtedly be watching with interest as WBD continues to expand.

The potential in the Russian market is huge, but like so many large countries, it is in fact made up of many different markets with a large number of regional players. If WBD can achieve its goal of a much broader distribution, throughout the whole of Russia, then it will truly be a takeover target.

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