Kraft to pay $7 billion for Danone biscuits business

In the first big acquisition of Irene Rosenfeld's tenure and of Kraft's independence, Kraft Foods Inc., Northfield, Ill., announced an offer to buy the global biscuit business of Groupe Danone for €5.3 billion ($7.2 billion) in cash.

A week later, France’s Danone turned around offered €12.3 billion ($17 billion) to buy Numico, a Dutch baby-food maker, as part of its focus on healthy nutrition.

Numico had sales last year of €2.62 billion ($3.6 billion). The company's chief executive was recruited from Danone in 2002. Recall that Nestlé is in the process of buying the baby food business of Novartis for $5.5 billion.

The Kraft offer was termed binding and acceptable by Danone although, by French law, Danone must consult with its Works Council before signing a definitive agreement. Both companies anticipate the transaction will close by the end of the year.

“This proposed acquisition makes great sense for Kraft,” said Rosenfeld, Kraft CEO for just over a year and chairman since March. “It will increase our presence in snacks — our fastest growing global segment — and transform our international business. This growing, high-margin business will give Kraft another core growth category in Europe, a cornerstone for faster growth in emerging markets, and the best portfolio of iconic biscuit brands in the world.”

The Danone brands include LU, Tuc and Prince plus operations and assets in 20 countries, including 36 manufacturing facilities, and 15,000 employees. The transaction does not include Danone's joint ventures in Latin America and India.

During 2006, the biscuit businesses to be acquired generated revenues of €2.0 billion ($2.7 billion) and income of €390 million ($525 million).

The European headquarters of the biscuit business will remain in the Paris metropolitan area for the foreseeable future. Kraft agreed not to close any of the Danone biscuit manufacturing facilities in France for at least three years. Georges Casala, who currently runs Danone's biscuit business, will join Kraft, as will key members of his team. Casala will report to Sanjay Khosla, president (since January) of Kraft International, and will manage the company's entire EU biscuit business, including Kraft's recently acquired Iberian biscuit brands and operations.

Kraft officials noted the purchase includes footholds in such important emerging markets as China, Russia, Poland, Indonesia and Malaysia, which account for more than 25 percent of the business. For example, Kraft will double the size of its business in China and gain entry into the biscuit category in Eastern Europe, notably in Russia, where Danone is the share leader.

Kraft became a fully independent company on March 30.

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