Danone’s bid for €3bn cash rocks stocks

The French giant, which counts Actimel and Evian amongst its brands, had debts of €11.26 billion at the end of last year – a figure said to have been inflated by its acquisition of Dutch Numico for €12.3bn in 2007.

In a two-line statement yesterday afternoon it said the rights issue would “reinforce its financial flexibility”. It is giving preference for the new shares to existing shareholders.

Emmanuel Faber, CEO, reportedly told a news conference that the ratio of debt to core earnings will decrease from 2.8 to 1.7 after the rights issue, which is planned for the coming days.

Faber said that the economic climate has thrown up rich pickings for bolt-on acquisitions, and the rights issue would allow it to take advantage of some of the opportunities and carrying on growing. However according to Reuters, he clarified in a conference call with analysts today that there is “absolutely no plan for any major acquisitions in the coming weeks or months”.

It will also mean that Danone will not have to deal with the debt weight by selling off non-core parts of its business.

The announcement was met with an immediate fall in share price this morning by 7.5 per cent to 36.67 euros.

Analysts are down beat about the news, saying the issue will mean a diluting effect on existing shares of at least 9 per cent.

But the company has not wavered from its full-year target for sales growth just below its medium-term guidance of 8 to 10 per cent – and growth in operating margin.

It is also still forecasting fully diluted earnings per share to rise by 10 per cent this year – not including the diluting effect of the new share issue.