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The Right Mix of (Yogurt) Cultures?

Gary Hirshberg is living the entrepreneur's dream -- with yogurt. The founder and CEO of Stonyfield Farm has built his company into the country's largest producer of organic yogurt, with $90 million in sales. He takes pride in contributing to environmental causes with his hard-earned wealth. And last year, he sold a big chunk of his business to a corporate behemoth to pay off shareholders in his private company.

In this case, the buyer was French food conglomerate Group Danone, which makes, among other things, Dannon yogurt. In October, Danone paid an undisclosed sum (believed to be more than $100 million) for what it said was an "initial 40% stake" in the Londonderry (N.H.) company. In 2004, it will have the option to gobble a majority stake and consolidate Stonyfield as part of the family.

Was Hirshberg nervous about partnering with a $12.7 billion giant? You bet. His general feeling is that such marriages don't work. "The little-guy culture tends to get squashed by the big," he says. It took Hirshberg two years to find the right partner -- and another two years to cobble together a deal that would keep him firmly in control of his company's destiny. At times, he got cold feet -- and some of the details weren't hammered out until 45 minutes before signing the contract. Even now, he still worries about how things will turn out.

BEN'S BLUES. Looking at the track record of similar companies, it's clear that Hirshberg has reason to be a tad skittish. On Feb. 12, Anita and Gordon Roddick stepped down as co-chairmen of The Body Shop, a retail chain of natural beauty-and-bath items that went public in the mid-1980s. At a Edinburgh book festival last summer, Anita Roddick described her business as a "dysfunctional coffin" -- comments that her spokesman later said were meant to reflect the "difficulty all entrepreneurs have in letting go." In any case, Adrian Bellamy, who will replace the Roddicks as chairman, is seen as less passionate about doing good works for fellow human beings and more committed to delivering bottom-line growth.

Then there was the sale of Ben & Jerry's to Unilever two years ago -- a deal that Hirshberg actually helped to arrange between the Anglo-Dutch group and his two buddies, who founded the Vermont ice-cream company. Just thinking about the deal makes Hirshberg wince. Critics say Unilver has given short shrift to Ben & Jerry's social values. Among other things, it no longer gives 7.5% of its profits to charity, opting instead for a more complex formula.

And Unilever replaced the chief executive with its own guy -- a move that made co-founder Ben Cohen publicly claim the Ben & Jerry culture of social responsibility was now under threat. Hirshberg, who hails from the Granite State next to Vermont, certainly took notice. "This process," he says, "did not go the way Ben wanted it to go."

Still, as Hirshberg rolls out his latest product initiative this week -- organic, low-fat, drinkable yogurt -- he claims to be thrilled by the progress on his deal with Danone. He thinks he'll save millions of dollars annually by tapping into Danone's purchasing power, distribution, insurance, and other efficiencies. Plus, the European company's research data could prove instrumental in launching new products. Once Danone takes majority control, he'll be able to use its sales force to sell his products. Another thing in the deal's favor: He has become close with Danone CEO Franck Riboud, exchanging e-mail or telephone calls several times a week.

"HAVE A COW." A final twist: Hirshberg will retain total control of the company -- even if Danone takes a majority stake. Other than the friendly exchanges with Riboud, he almost never deals with Danone itself. It's as if the French outfit handed over the cash to pay off his 297 shareholders, and that was it in terms of his new investor's intimate involvement.

That means eco-friendly baby boomer Hirshberg can continue his somewhat quirky business practices. He donates 10% of his net profits to charity -- in this case to "efforts that help protect and restore the earth." He pays farmers extra to not use the synthetic bovine growth hormone rBGH. And then there's Stonyfield's "Have a Cow" program to foster a stronger connection between consumers and their food supply. Under the program, about 30,000 people have "adopted" Stonyfield cows.

These things are the heart and soul of Stonyfield, says Hirshberg, a committed athlete who shuns coffee because of the caffeine. "I wasn't prepared to give up day-to-day control," he explains. As for his new European connection, he likes it: people on the Continent not only consume far more yogurt than Americans, he also believes they have a far greater appreciation of the environment.

WHEY TO GO. Danone also showed what Hirshberg calls an incredible willingness to forego bottom-line considerations and bend to his desires in forging a deal. "They really won me over," he says. "There was no American company that was as intellectually flexible and understood us like Danone or the other European companies."

Now, the 47-year-old Hirsberg, is looking forward to the next phase. His yogurt drinks are already on the shelves in many natural-food stores across the country and will be launched in New York City's supermarkets in mid-February. Numerous other products are in the works, he says, and he has exciting synergies to explore with his new partner.

"There was a time in the negotiation process when we were haggling over split infinitives, and it all seemed Clintonesque," Hirshberg admits. Who knows? Maybe he'll step aside in a decade or so. In the meantime, the organic dairy chief has the best of both worlds and is crossing his fingers that the deal will continue to pay off big for Stonyfield. By Diane Brady in New York

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