Glenboden M & A Originations

Potential buyers for Yoplait in fresh dairy

Priority Rating priority rating 4
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Origination Status reported exit intent, July 2010
Asset Yoplait (France), major international fresh dairy producer
Buyer candidates include FrieslandCampina, Arla, Kirin
Seller PAI Partners and Sodiaal (both France), private equity firm and dairy co-operative
Buyer Rationale new geographies, value -added portfolio, brand
Seller Rationale acceptable valuation, liquidity event for co-operative members
NBs PAI acquired 50% of Yoplait from Sodiaal in 2002
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PAI, the private equity shareholder in Yoplait, a major international fresh dairy producer, is reportedly looking to sell its 50% stake in that group. We argue that full value would only be achieved if its partner, Sodiaal, also sells its 50% to a third-party buyer. We look at specific candidates, in Europe and from Japan.

Private equity - co-operative partnership problem ... Yoplait seems to have declined, since PAI invested in 2002 in the company, which had earlier been 100% owned by Sodiaal, a big French dairy co-operative.

It's strong in France, where it’s branded no.2, and in the US where, through a JV with General Mills, it’s market leader in certain segments; but Yoplait is weak elsewhere because its franchise model has had mixed success.

It’s withdrawn from certain markets e.g. in the CEE region; its innovation pipeline has been weak when compared with e.g. Danone; and it hasn't made any significant acquisitions since PAI's investment.

Yoplait claims to be the no.2 global fresh dairy producer, with 10% share. With revenues of only around € 1 bln, that smacks of a twist of hand, which is usually a sign of weakness.

Looking deeper it turns out that, according to Sodiaal, Yoplait is only the global no.2 brand in ultra-fresh dairy. Ultra-fresh is a far smaller category than fresh.

... buy -back to Sodiaal unlikely ...The most obvious exit route would be for PAI to sell its 50% back to its partner, Sodiaal, the giant dairy co-operative in France. After all, most joint-ventures are terminated by buy-backs of that kind.

However, that group’s apparent strategy and M&A history, especially after its recent merger with Entremont, the no.4 cheese producer in France, as well as Yoplait's profile, suggest that isn't a wise or likely outcome.

... Sodiaal not focused on fresh dairy ...With annual sales revenue of about € 2,2 bln, Sodiaal is the no.2 processor of milk in France. The other parts of that group are Candia (retail milk), Riches Monts (cheese) and Nutribio and Beuralia (ingredients and formulas).

These categories better suit Sodiaal's co-operative model than fresh dairy, because they use more milk and are less marketing -driven. For that reason alone, Sodiaal should not look to acquire PAI's 50% in Yoplait.

... no stomach for acquisitions ...On top of that, Sodiaal’s recent M&A activity has seen it contribute both its cheese business and its non-consumer assets into 50:50 joint ventures with, respectively, Bongrain (Compagnie des Fromages) and Entremont, in 2007.

Also the ongoing full merger with Entremont appears to have been entered into by Sodiaal reluctantly, as part of a rescue package for the former.

This all suggests a weak appetite for any further, full acquisitions by Sodiaal; let alone one in fresh dairy.

... liquidity event and aligned interestsSodiaal should recognize this and, taking note of the Dairy Farmers precedent in Australia, where a co-operative was sold to a strategic investor, the group might decide that its members, too, deserve a ‘liquidity event’.

Thus Sodiaal's interests would be aligned with those of its partner PAI, in terms of value maximization from the sale of Yoplait.

These arguments, plus the weakness of Yoplait, suggest that the best outcome would be for a more commercial group than Sodiaal, possibly one with a large existing fresh dairy business in Europe, to acquire that brand.

FC interest in brand, geography and value -added ... One buyer candidate is FrieslandCampina, the largest dairy producer in Europe with revenues in 2009 of € 8,2 bln.

The group's strategy is to increase sales by 5% annually until 2020, focusing on value -added products and becoming less dependent on commodities.

It's also keen to develop its consumer branded business in new geographies. Yoplait would tick both the value -added box, and the new geography one.

FC holds a dominant market position in Benelux, and a strong one in Germany; Yoplait would add France to the map and give a bridgehead into the US. Also, FC likes to collect brands, currently boasting around 30 of them in its portfolio.

... financially challengedThe problem for FC might be financial, as its net debt ratio is estimated to exceed x3,0 EBITDA.

The group might need to raise more cash through divestments, before acquiring Yoplait. It's already on that path, having sold businesses in Holland, Germany and Romania in recent years.

Arla needs boost to growth and brand portfolioThe biggest dairy processor in the Nordic region and the UK, Arla is targeting new core geographies in Europe. With the acquisition of Nijkerk in 2009, Holland was added to that list.

Yoplait would fold France into Arla's core geographies, and bring a new core brand alongside Arla, Lurpak and Castello.

It would also boost the group's fresh dairy business, which currently accounts for 45% of total 2009 revenue of 46,2 bln DKK.

On top of that, Yoplait would stem Arla's sales decline; revenue fell by 5% in 2009, and the group's turnover target of 75 bln DKK has been delayed until 2015.

Kirin targeting international acquisitions ...Finally we tip Kirin as a buyer for Yoplait. As with the other big four food and beverage producers in Japan, namely Asahi, Suntory and Sapporo, it's well known that Kirin is seeking growth internationally, through acquisitions.

Kirin also has money to spend (see chart). Although its net debt ratio is quite high, its scale is also very large; EBITDA of 234 bln Yen is equivalent to € 2 bln.

Kirin's strategy is to increase revenue to 2,5 tr Yen by 2015, principally by increasing the share of international sales to 30% of the total.

Although the group has targeted Asia and Oceania, we believe it could be interested in making a significant dairy brand acquisition in Europe also.

... already present in dairy in Japan and Australia ...Kirin, alongside beer, is already present in dairy in its native Japan. Moreover, in 2007 and 2008 it acquired, respectively, National Foods and Dairy Farmers, through which it has become the no.1 branded dairy player in Australia.

... follow Suntory into EuropeKirin has not yet made a significant acquisition in Europe. However one of its rivals, Suntory, acquired Orangina, the no.3 soft drinks player in Europe, in 2009.

The big Japanese food and beverage groups have a habit of making rival acquisitions, but not necessarily in competing categories.

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Size (€ mln) 670
Sector fresh dairy
Asset Quality international leader branded
Seller private equity
Buyer large plc
P/S 0,67
P/Ebitda 12,5
Type value estimate
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