Other dairy coasts – Newspaper Kommersant No. 192 (7393) dated 10/15/2022

The French Danone, the largest player in the global dairy market, is preparing to cut its business in Russia, where it has been present since 1992. The company has begun transferring control over local production of dairy products and plant-based drinks, which could reduce the value of its assets by up to €1 billion. The baby food business in Russia will not be affected by the transaction. Analysts still consider the transfer of assets to management with the possibility of return as a likely scenario.

Danone has begun the process of transferring operational control of the Russian plant-based dairy and beverage business, informed company. They added that this is the “best option” to ensure the continuity of local operations in the long term. The deal will require regulatory approval. Its implementation could lead to a decrease in the value of Danone’s assets by up to €1 billion. Other details have not yet been determined. Danone’s Russian business for the production of baby food at the Istra-Nutritsia plant under the Nutrilon, Malyutka and Malysh brands will not be affected by the transaction, a company representative specified.

Danone is the largest manufacturer of dairy products in the world, founded in 1919 in Barcelona by Isaac Carasso. The company is now headquartered in Paris. For 2021, 78% of Danone’s shares were owned by institutional investors, including Blackrock, Artisan Partners and MFS, the report said. In 2021, Danone’s global revenue grew by 3.4% to €24.3 billion.

Danone has been present in Russia since 1992. The production of dairy products began in 1994 at a plant in Tolyatti, and in 2000 an enterprise was launched in Chekhov, Moscow Region. In 2010, Danone agreed to merge with Andrey Beskhmelnitsky’s Unimilk holding, which was then the second milk processor, and partners, receiving about 58% in the combined company, and six years later increasing the share to more than 90%.

According to Soyuzmolok, in 2021 Danone was the largest milk processor in the Russian Federation in terms of revenue from 122.7 billion rubles. The company has 13 factories in Russia that produce traditional dairy products, yogurts, desserts, curds, etc. The brand portfolio includes Prostokvashino, Activia, Actimel, Rastishka, Danissimo, Danone, BioBalance, Tyoma, Alpro, etc. At the end of 2021, the net profit of Danone Russia and Danone Trade amounted to 8.85 billion and 1.43 billion rubles. respectively.

According to Kommersant’s sources, Danone’s announcement may be due to increased pressure on the global office due to continued work in Russia against the backdrop of ongoing hostilities in Ukraine.

The baby food business, due to its importance, suffers to a lesser extent, which is why it could be excluded from the deal, one of Kommersant’s interlocutors points out. According to sources, the scenario for the transfer of control to Danone is likely to be determined.

Dmitry Gabyshev, managing director of Peregrine Capital, says that the simplest and fastest scheme would be to transfer the business to Russian management or a financial investor with a buyback option. There were no signs of looking for a real buyer in the market yet, he adds. Artem Motorny, managing partner at Walnut Capital, says the sale of Danone’s Russian business would likely have been through a tender and in a single lot to try to maintain maximum value and return.

Marat Ibragimov, a senior analyst at Gazprombank, said the reported amount of up to €1bn would be the difference between the value of Russian assets on the group’s balance sheet and the actual amount Danone expects to receive. The value of the assets of Danone Russia JSC for 2021 in the reporting is 56.76 billion rubles, or more than €0.9 billion.

Soyuzmolok CEO Artem Belov admits that we can talk about a deal, which, for example, was implemented by the Swedish packaging manufacturer Tetra Pak, to transfer the business to local management and separate the Russian division. For plants operating in Russia, this will remove restrictions on the choice of suppliers of raw materials, logistics, as well as a ban on investment, advertising and promotion, he points out.

As Alexei Gruzdev, CEO of Streda Consulting, notes, the issue of changing products and recipes will depend on Danone’s position in the care and availability of patents.

For example, Actimel is at risk, he points out. The culture contained in the basis of the product is selected by the Danone research center, patented by the company and used exclusively by the company, according to the Actimel website. According to Mr. Gruzdev, the question remains whether Danone will allow the use of some international brands in Russia – Activia, Danone, Alpro. As Artem Belov recalls, the Finnish Valio left the rights to the Viola brand to the buyer of the Russian business.

Anatoly Kostyrev