Glenboden M & A Originations

Lactalis or Asian group could acquire Yoplait

Priority Rating priority rating 5
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Origination Status tender process for sale of 50% stake, November 2010
Asset Yoplait (France), no.2 global ultra-fresh dairy producer
Buyer candidates include Lactalis, Nestle, (Kirin, Lotte)
Seller PAI Partners and Sodiaal (both France), private equity firm and dairy co-operative
Buyer Rationale market leading position in new geographies (esp. US, France), legacy 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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The tender to sell the French fresh dairy player, Yoplait, seems to be in full swing. It's not an easy business to assess, but it looks like a strong legacy brand for which the highest bids might come from local champion Lactalis, and from determined shoppers from Asia.

100% sale would be best ...Private equity firm PAI wants to sell the 50% it's held in Yoplait since 2002. Its co-owner Sodiaal, founder of Yoplait and France's largest dairy co-operative, is reluctant to sell its half thus denying a control premium to a buyer.

We've argued that given Sodiaal's situation (digestion of Entremont, non -snacks dairy focus, passive M&A culture), the best outcome would be for Yoplait to be sold 100%, to maximise the price and give the Sodiaal farmers a liquidity event.

Assuming that at least a majority in Yoplait will be sold, and leaving aside the predictable interest from private equity, we look at the value proposition and anticipate a bidding contest among strategic investors.

... question of definition ...Yoplait is touted as 'the no.2 global fresh dairy producer', but this is problematic; it depends inter alia on how one defines fresh dairy.

The group itself, and its founder Sodiaal, describes Yoplait as the no.2 global player in ultra-fresh dairy, which is only a segment of fresh dairy as a whole. Plus there's the discrepancy between Yoplait the group and 'Yoplait' the brand.

The group presents itself as € 4 bln in consumer price terms. But that includes trade margins and VAT, and is skewed by the Yoplait franchise model, through which it exists in most of the 50 countries in which 'Yoplait' is sold.

... deciphering valuation ...We apply the € 900 mln turnover figure for 2009, presented on the Sodiaal website, for our analysis (see valuation). That's likely to include both direct sales and royalties from the franchise model.

Employing the recent Danone - YoCream deal as comparative transaction, and an assumed EBITDA margin of 20%, which seems right given the brand, franchise model and categories of Yoplait, we arrive at that € 1,5 bln price tag.

... key strategic attractionsYoplait's appeal is in its leading (top three) market positions in the US and French chilled yoghurt and fresh cheese snacks markets.

The US market, which constitutes about 50% of Yoplait volume sales (see chart), is served through a franchise agreement with General Mills.

That's a high-value fresh dairy market with big growth potential, as evidenced by Danone's recent acquisition there of the frozen yoghurt maker, YoCream, and by its 20% strategic stake in Lifeway, the kefir specialist.

Also, in the huge French fresh dairy snacks market, Yoplait is a very strong legacy brand which, in certain segments like 'petits filous', is still dominant.

Lactalis and Asian candidates ...Yoplait's CEO's reported valuation of the group, at € 1,5 bln, just after Lactalis placed as unsolicited bid for € 1,4 bln, shows that Lactalis is in pole position to make the acquisition.

Apparently other bidders for Yoplait range from Nestle, the global food no.1, to emerging market rivals from China and Mexico.

It's hard to believe that Nestle is seriously interested in Yoplait, when its fresh dairy business in western Europe, or 'chilled' dairy to use the Nestle terminology, is already in a JV controlled by Lactalis.

We opt for either Lactalis coming good in the end, and suggest that a Japanese food group, with recent M&A beyond its comfort zone geographically, could bid - maybe Kirin or Lotte.

... Kirin well poised ...One of the big four food and beverage producers in Japan, Kirin is known to be seeking growth internationally through acquisitions and, with EBITDA of around € 2 bln in 2009, has the scale to swallow something like Yoplait.

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

Kirin 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.

Kirin hasn't yet made a big acquisition in Europe. But its rival Suntory acquired Orangina, the no.3 soft drinks player in Europe, in 2009. The big Japanese groups tend to make rival acquisitions, but not in competing categories.

... Lotte a wild cardLotte, a huge family -owned conglomerate in Japan, is present in sectors as diverse as food products (famously chewing gum), property, finance and trading.

That group surprised the M&A world when, earlier in 2010, it forayed into Europe by acquiring the no.1 legacy chocolate brand in Poland, 'Wedel', from Kraft for over € 200 mln.

Having made that bridgehead, everyone's waiting for Lotte's next M&A move in Europe. Yoplait has the right profile in terms of being a legacy food brand, and gives Lotte more of an international platform than Wedel does.

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THIS LEAD'S VALUATION
Size (€ mln) 1.500
Sector fresh dairy
Asset Quality US and France leader branded
Seller private equity
Buyer large corporate
P/S 1,5
P/Ebitda 8,0
Type enterprise value estimate
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