PARIS (Reuters) – Danone announced in a press release on Friday its decision to launch the process of “transferring control of its Essential Dairy and Plant-based activity (EDP, essential dairy products of plant origin-Editor’s note) to Russia”.
The group indicates that the operation could result in a depreciation of up to one billion euros.
Danone specifies that at the end of this operation, which will be subject to the approval of the competent authorities, it plans to “deconsolidate its EDP activity in Russia”.
“During the first 9 months of 2022, EDP activity in Russia represented around 5% of Danone’s consolidated turnover”, underlines the company.
“It had a dilutive contribution to like-for-like sales growth and to the group’s current operating margin,” adds Danone.
A source familiar with the matter said Danone may retain a stake in Russia’s largest dairy business. The company did not reveal who the business would be transferred to, while a Russian analyst identified a number of potential suitors.
“The board has just started a process that will lead to a transaction that could be a full or partial sale,” the source said, adding that the goal was to stop operating the business.
The French agri-food group announced in late March that it would continue its local production in Russia of essential dairy products and infant nutrition even if it had cut its other ties with the country because of the war in Ukraine.
The EDP activity has 7,200 employees and 12 production sites.
THREE POTENTIAL LOCAL CONTENDERS
According to Mikhail Michchenko, director of the Russian Dairy Market Research Centre, there are three potential local contenders: Econiva, Komos and Molvest.
He believes the most likely company to win EDP would be Econiva, one of the country’s largest suppliers of unpasteurized milk, which also enjoys state support.
But assets can also be fragmented and distributed among market players, he added.
The three Russian companies did not immediately respond to requests for comment. Danone declined to comment.
Chief executive Antoine de Saint-Affrique, who took over the company last September, said the company would spin off underperforming businesses as part of a turnaround plan launched this year.
“Russia is clearly an asset they had to part with,” said Pierre Tegner, an analyst at Oddo BHF, in a note.
“It’s not just because Russia is a low-margin, low-growth business. It’s mostly because this asset has generated a lot of distraction over the past 11 years for top management.”
Other areas where the group could review non-essential operations include milk and basic dairy products in Brazil, Argentina, Mexico and Morocco, Pierre Tegner said, as well as organic milk in the United States. , baby meals in France and Italy.
(Written by Myriam Rivet, Matthieu Protard and Kate Entringer)