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Kraft makes offer for Danone unit

The company whose brands include Oreo bids $7.2 billion for the group's cookie division.

July 04, 2007|From the Associated Press

The Oreo cookie may get company soon.

Kraft Foods Inc., which makes the ubiquitous American snack, announced Tuesday that it had offered to pay $7.2 billion for the cookie and cereal division of French food giant Groupe Danone.

If approved, the deal would give America's biggest food and beverage company an even larger foothold around the globe as it tries to turn around its finances. It would also bring brands that are famous in Europe, such as LU, Petit Dejeuner, Tuc and Mikado, under the Kraft umbrella.

"Today's announcement does indicate that Kraft is determined to be more aggressive in pursuit of its portfolio restructuring, with an emphasis on international operations," Andrew Wood, a European food analyst at Sanford C. Bernstein, wrote in a research note.

Danone said its board was considering the bid, received Monday, on an exclusive basis.

Shedding the cookie division would enable Danone to concentrate on its dairy products and water unit, Danone Chief Executive Franck Riboud said.

"The offer of Kraft Foods represents a strong strategic and industrial opportunity for the biscuits and cereal products business," he said.

Executives at Northbrook, Ill.-based Kraft trumpeted the deal as a way to increase the company's presence in China, Eastern Europe and areas of the developing world.

"This proposed acquisition makes great sense for Kraft," CEO Irene Rosenfeld said.

But Kraft shares fell on news of the offer, which was seen by some analysts as too high.

"Although the acquisition of Danone's Global Biscuit operation moderately improves Kraft's international margin profile, business mix and European scale, on balance we have a negative view of the transaction," Morgan Stanley analyst David Adelman wrote.

"Danone's biscuit operations is generally a mediocre business," he added.

Although about three-quarters of the Danone unit's business is in Western Europe, Kraft would double the size of its business in China if the deal is approved. It would also improve the scale of Kraft's snacks portfolio while giving its so-called legacy labels, such as Oreo, Chips Ahoy! and Ritz crackers, a boost in emerging markets, said Wachovia Securities analyst Jonathan Feeney.

Danone's U.S.-traded shares fell 20 cents to $16.65, while Kraft lost 87 cents to $34.66.

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