Danone Said to Talk With Kirin, Asahi on Sale of Water Business

Danone SA, owner of the Evian and Volvic bottled-water brands, is talking with Japanese beverage makers about the sale of part or all of its water business, said three people with knowledge of the matter.

Danone officials met with Kirin Holdings Co., Asahi Breweries Ltd. and Suntory Holdings Ltd. in Asia this week to gauge their interest in the unit, which may fetch $5 billion to $7 billion, said two of the people, who declined to be identified because the matter is private. The talks are at an early stage and a deal may not be reached, they said.

Kirin, Asahi and closely held Suntory are expanding abroad as Japan’s population shrinks. Kirin, which sells Volvic in its home market, has spent more than $8 billion on acquisitions in the past three years, and Asahi has said it can spend as much as 400 billion yen ($4.9 billion) on takeovers.

“It might work out long term” for the buyer even though the price may be expensive, said Edwin Merner, president of Tokyo-based Atlantis Investment Research Corp., which manages $3 billion. “The water business worldwide should continue to grow, and the good brands should continue to do well, as people are willing to pay up for safe water.”

Danone might get as much as 7 billion euros ($9.6 billion) in a sale, David Hayes, an analyst at Nomura in London, estimated, while Pablo Zuanic, an analyst at Liberum Capital, estimated the division is worth 5.4 billion euros. Evian alone is worth 1.2 billion euros, Zuanic said, putting the value of other brands in developed markets at 652 million euros and its emerging-market business at 3.54 billion euros.

Joint Venture

Paris-based Danone could raise about 700 million euros through a joint venture in which it retains ownership of its brands in Europe and allows a partner to market and distribute them, Hayes said. Contracts to operate springs are politically “sensitive” and might not be transferred in case of asset sales, he said. Danone probably won’t sell its emerging-market water business because of the higher growth potential, he said.

Kirin rose 5.7 percent, the biggest gain in almost 16 months, to close at 1,145 yen on the Tokyo Stock Exchange. Asahi climbed 0.6 percent to 1,618 yen.

Danone, the world’s biggest yogurt maker, rose to the highest in more than two years in Paris trading yesterday. The stock fell 1.5 percent to 46.44 euros at 2:24 p.m. in Paris today, giving the company a market value of 30.1 billion euros. MF Global analyst Andy Smith raised Danone to “tactical buy” from “sell” today on the prospect that there could be a bidding war for the assets.

Sabrina Schneider, a spokeswoman for Danone, and Cecilia de Pierrebourg, a spokeswoman for Tokyo-based Danone Asia Pacific, declined to comment. Jun Sato, a spokesman for Kirin; Takayuki Tanaka, a spokesman for Asahi; and Midori Takahashi, a spokeswoman for Suntory, also declined to comment.

Mead Johnson

Kirin is the most interested of the potential Japanese bidders, one of the people familiar with the matter said. Suntory told banks this week it was seeking a financial adviser and funding for a deal with Danone, another person said. Danone plans to limit how many buyers it approaches in a sale process, the people said.

“It may be good for Japanese companies to buy Danone’s water business just in Asia, instead of the whole thing,” said Hiroshi Saji, an analyst at Mizuho Securities Co. in Tokyo. He has an “outperform” rating on Kirin and Asahi shares.

Sales at Danone’s water division totaled 2.6 billion euros last year. A deal involving the assets may increase speculation about acquisitions by the company, according to Carl Short, an equity analyst at Standard & Poor’s in London.

Mead Johnson Nutrition Co., the Glenview, Illinois-based maker of Enfamil baby formula, would draw interest from Danone and Nestle SA, the world’s largest food company, the people said.

‘Spare Parts’

“Danone has been very clear about wanting to acquire ‘spare parts’ of Mead, but that it has no interest in owning the U.S. baby food business,” Nomura’s Hayes wrote. Danone and H.J. Heinz Co. could make a joint bid for Mead Johnson, he added.

Kathryn Chieger, a spokeswoman at Mead Johnson, declined to comment.

The Wall Street Journal reported earlier that Kirin and Asahi are interested in the water unit. Suntory may also be a suitor for some of the business, the newspaper said.

“These Japanese companies are desperately looking to acquire something to diversify from their home market,” said Carl Short at Standard & Poor’s, who has a “hold” rating on Danone.

Ito En Ltd., a Tokyo-based beverage maker, sells Evian bottled water in Japan.

To contact the reporters on this story: Jeffrey McCracken in New York at jmccracken3@bloomberg.net; Jacqueline Simmons in Paris at jackiem@bloomberg.net

To contact the editors responsible for this story: Jeff St.Onge at jstonge@bloomberg.net; Jennifer Sondag at jsondag@bloomberg.net

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