Glenboden M & A Originations

Will Skanemejerier become another bargain for Lactalis ?

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Origination Status seller statements, January 2012
Asset Skanemejerier (Sweden), no.2 domestic dairy producer
Buyer Groupe Lactalis (France), no.1 global dairy producer
Seller Skanemejerier co-operative owners (milk suppliers)
Buyer Rationale significant presence in Scandinavia, attractive valuation
Seller Rationale financial problems, joining a global group
NBs deal to close in March, subject to Skanemejerier's members' council votes and statute changes
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Lactalis is in exclusive negotiations to acquire Sweden's Skanemejerier. Although that dairy group is an attractive asset, we believe there's an element of opportunism behind this purchase, if the rumoured low valuation is true. There's also a question mark over the status of ProViva, controlled by Danone.

Lactalis will buy anything ...With a growth rate in 2010 of over 10%, the no.2 market position in Sweden, a well-recognised brand and a strong M&A record of its own, Skane is an attractive acquisition opportunity for a global dairy group.

it's no surprise that Lactalis is emerging as the buyer, given that the group has made about 15 acquisitions in Europe in the last five years, and in 2011 jumped to the no.1 position in global dairy after acquiring Italy's Parmalat (see chart).

Skane provides Lactalis with a strong foothold in Scandinavia, particularly in perishable products (75% of Skane's sales). That region is hitherto dominated by Arla, as well as Tine in Norway and Valio in Finland.

... especially if the price is rightWe believe there's also an element of opportunism, given Skane's financial situation (operating loss in 2010); surely reflected in a very low rumoured price (see valuation). Lactalis is known for acquiring quickly and cheaply.

Skane's financial weakness is highlighted by its sale to Danone in 2010 of 51% of the ProViva functional fruit drinks business, that it's developed over 15 years. Ostensibly the rationale was that only Danone could internationalise ProViva

At the same time, that business was one of the most profitable in the group's portfolio, and has seen its domestic market share in chilled fruit drinks exceed 20% (in 2010). Proceeds were used to repay debt.

Implications for Danone ...Danone acquired ProViva largely for its proven application of functional technology to fruit -based products, to enhance the group's core strategy of expanding functional foods beyond dairy.

The acquisition possibly dovetails with Danone's joint-venture with Chiquita, announced in 2010, to distribute the latter's 'Just Fruit in a Bottle' smoothies and other fruit drinks in Europe.

The sting in the tail is that the 49% of ProViva that Skane retained is to be sold to Danone in years 8 and 11 after the original deal. That schedule is likely to be sharply accelerated, given the rivalry between Danone and Lactalis.

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THIS LEAD'S VALUATION
Size (€ mln) 115
Sector dairy products
Asset Quality Sweden no.2 branded
Seller co-operative
Buyer large private group
P/S 0,3
P/Ebitda n/a
Type rumoured valuation
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