Yoghurt is given a return date

“Kommersant” became aware of the conditions under which the large dairy producer Danone is ready to transfer control over part of the assets in Russia and only domestic, but not global brands to potential investors. The deal could include a buyback option, keeping Danone up to 25% in the business and a seat on the board of directors. Such a scheme may be of interest primarily to financial investors.

Danone has included a buyback option in a deal to transfer control of the Russian dairy and plant-based beverage business, two sources familiar with the sale discussions told Kommersant. According to one of them, investors were offered from 75%, Danone wants to keep a stake and a seat on the board of directors of the Russian company after the deal. Danone stated that they do not comment on this topic.

Danone announced its intention to transfer control over part of the business in Russia, with the exception of the baby food segment (the Istra-Nutritsia plant, the Nutrilon, Malyutka and Malysh brands) in October 2022. The company called the move “the best option” to maintain the continuity of local operations in the long term.

According to two Kommersant sources, only Russian Danone brands should enter the deal, including Prostokvashino, Rastishka, and Tyoma. As one of Kommersant’s interlocutors suggests, the first stage of selection of interested parties has ended. There are several investment funds among potential buyers, Kommersant’s sources say, without naming them.

Dmitry Gabyshev, managing director of Peregrine Capital, says that the presence of a buyback option will significantly limit the circle of potential buyers. According to him, first of all, the deal may be of interest to financial investors, for whom the liquidity of assets and an understanding of the exit process from them are important. For strategists, this is rather a minus, since the possibility of a buyback will bind those in business management, the expert explains.

The parameters of the option, Mr. Gabyshev believes, may include an expiration date, for example, from five years from the date of sale, an initial price and a minimum guaranteed yield. Financial conditions will be determined based on the portfolio of brands, dependence on imported raw materials, receipt of funds from the parent structure, the potential of the Russian market, he specifies. So, Dmitry Gabyshev notes, without global marks, the EBITDA of the business being sold will differ from the existing one.

The buyback option was provided for in the transactions of several foreign companies that sold business in Russia after the outbreak of hostilities in Ukraine. Such a condition, for example, was provided for when selling the assets of Nissan and Renault to the state, the Ministry of Industry and Trade reported. Businessman Alexander Govor, who bought the Russian restaurants of the McDonald’s chain, also reported that the American company had an option to buy back the business within 10-15 years.

Alexey Gruzdev, CEO of Streda Consulting, says that in the segment of traditional dairy products (milk, kefir, cottage cheese, sour cream, etc.) Danone is represented by the local brand Prostokvashino, which has a strong position and is unlikely to be affected by a change of ownership, but in the category of yoghurts and desserts, a significant share of sales is provided by the global Activia and Actimel. According to the expert, the rejection of marketing investments against the backdrop of a general decline in demand for yogurts has already “become painful” for Danone’s business in the Russian Federation. According to NielsenIQ, in 2022, sales of all dairy products in Russia decreased by 4.4% in volume and increased by 13.1% in money terms. Yogurt sales decreased by 15.2-17.3% depending on the type, while in money terms they increased by 1.7-2.6% year-on-year.

Anatoly Kostyrev