Glenboden M & A Originations

Yoplait chilled dairy ready for sale after Senoble and Dairy Farmers precedents

Priority Rating priority rating 2
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Origination Status primary deal origination, October 2008
Asset Yoplait chilled dairy (France), no.2 domestic ultra-fresh dairy producer and no.1 in the US
Buyer potential acquirors include Lactalis, Fonterra, Dairy Crest, (or Sodiaal buy-back)
Seller PAI Partners (France), private equity manager and 50% owner of Yoplait
Buyer Rationale dairy consolidation, timing, attractive brand
Seller Rationale acceptable valuation of non-majority shareholding with limited upside potential
NBs valuation multiple based on precedent of Kirin acquisition of Dairy Farmers, August 2008
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PAI has held its 50% stake in the Yoplait strategic alliance for 6 years now, which is longer than the consensus period for private equity. With the acquisition of Dairy Farmers by Kirin Holdings in Australia, a clear precedent has been set whereby a private group acquires control of a dairy co-operative; this undoubtedly will encourage PAI to seek a similar exit route for Yoplait.

There is another recent precedent, in the form of the buy-out of 3i private equity from its stake in the Senoble dairy business in France. The key question is whether Sodiaal, a big French dairy co-operative and PAI’s 50% partner in Yoplait, will agree to the sale of the whole business, to another dairy group, or attempt the buy-out of PAI’s stake instead.

Yoplait is a very strong, legacy chilled dairy brand in France, no.2 in market share behind Danone. The purpose of PAI’s investment, back in 2002, was to support international growth through product innovation and other marketing initiatives.

However, it appears that Yoplait is no stronger today, six years later, than it was when PAI invested in it. At that time, Yoplait already had a strong market position in France, and market leadership in chilled dairy in the US through its joint operation with General Mills. It already had an international presence in 50 markets through subsidiaries, joint-ventures and a franchisee network. What value has PAI added since then ?

We believe that Yoplait’s market position has in fact deteriorated since 2002; that it’s withdrawn from certain markets such as in the CEE region; that its innovation pipeline has been weak when compared e.g. to its main rival, Danone. On top of that, not a single significant acquisition has been made by Yoplait, since PAI’s investment, in an era where dairy consolidation has been quite intense.

So what are PAI’s options now, and how far will the Sodiaal co-operative go along with them ?

One precedent is provided by 3i’s exit from Senoble, a few months’ earlier. That was not a stellar investment for that private equity group but, with only a 25% stake in a business that, like Yoplait, had failed to perform in terms of acquisitions, 3i had no option but to sell its shares back to the Senoble family.

By contrast, PAI has 50% of Yoplait, which should allow it to block moves by Sodiaal that it doesn’t agree with, and generally to use brinksmanship to get what it wants. With Yoplait still representing a strong international brand, PAI has every incentive to fight for exit value maximization.

But will Sodiaal, a dairy co-operative with 13.500 dairy farmer members, agree to sell a controlling or 100% stake in Yoplait to another dairy group ? A few years ago, the consensus might have been no. However, with the recent precedent of the Dairy Farmers co-operative being sold to the private producer National Foods (part of Kirin Holdings), Sodiaal’s members might decide that they, too, deserve a lucrative ‘liquidity event’ after all their years of toil.

Besides which, Yoplait is only 25% of the € 2,5 bln turnover dairy group that Sodiaal controls. The other parts of it, spanning Candia (retail milk), Riches Monts (cheese) and Sodiaal Industrie (industrial products and milk ingredients), are arguably much more sustainable under a co-operative model than chilled dairy, which uses less milk and is much more marketing –driven.

On top of that, Sodiaal’s members had already agreed to the plan of a stock market flotation, as PAI’s exit route, so maybe they can go one step further now by agreeing to a strategic sale instead.

The likely buyers list for Yoplait, in our opinion, is headed by Lactalis. It has the scale, the ambition and the acquisition track record to win a tender, and will no doubt wish to challenge Danone more strongly in the French chilled dairy market, where it currently competes through a joint-venture with Nestle chilled dairy.

Other potential acquirors include Dairy Crest of the UK, who has yet to follow through with a second acquisition in continental Europe, after its acquisition of St Hubert spreads in France in 2007; it’s also Yoplait’s franchisee in the UK already.

Also a longer –shot bid might come from Fonterra, the New Zealand dairy giant that’s gathering acquisition momentum in chilled products.

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Size (€ mln) 500
Sector chilled dairy
Asset Quality France no.2 branded
Seller private equity
Buyer large corporate
P/S 0,7
P/Ebitda n/a
Type estimated value
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