The deal will give the Danone-Unimilk business a leading position in the CIS region, especially in Russia, where it will have a 21 per cent market share.
Danone will control a 57.5 per cent interest in the new entity, which will count 18,000 employees with operations in Russia, Ukraine, Kazakhstan and Belarus.
In a statement, Danone said the tie-up with Unimilk is highly complementary, with the former bringing its global trade position and expertise to play, while the latter offers strong local brands and knowledge, plus a well-established distribution network in the region.
Also, Danone said the deal is a good geographical fit as Danone currently operates mainly in western Russia, while Unimilk has a higher profile to the east.
In total, Unimilk has 28 production sites in Russia, Ukraine, and Belarus and employs 14,000 people. It sales in 2009 amounted to €1bn (7 per cent up on 2008).
Investment and growth potential
Commenting on the alliance, Danone Chairman and CEO Franck Riboud said, “Almost 20 years after taking our first steps in Russia, Danone-Unimilk represents a strategic move for Danone in a region which is offering a promise of growth in the years ahead, and where we will be pursuing ambitious goals for the future.”
Unimilk CEO Andrey Beskhmelnitsky, who will chair the new Danone-Unimilk business, added that the deal will “increase investment potential of the whole industry”.
However, Oddo Securities warned in a note to investors that Unimilk is the less profitable partner so the deal would initially depress Danone margins. The French brokers qualified this statement by pointing to the potential for synergies and their positive impact on margins.
“The merger will, however, generate significant synergies and the joint venture is expected to reach the current level of operating margin of Danone Russia within three years, that is by 2013.”
Taking over the operational management of the business will be Filip Kegels, the current general manager for Danone Fresh Dairy Products in Eastern Europe and Central Asia.
The transaction, which is expected to take place by the end of 2010 once regulatory approval is obtained, will be carried out through a contribution of assets, supplemented with a cash purchase of shares by Danone. As a result of the deal, Danone’s net financial debt will increase by €1.3 billion. The French dairy firm said it expects the deal to become accretive to earnings per share starting in 2011.