Danone Said to Be in Talks to Sell Water Assets to Suntory

Danone (BN), the owner of the Evian and Volvic brands, is in discussions to sell bottled-water assets to Japan’s Suntory Holdings Ltd., three people familiar with the matter said.

Paris-based Danone is seeking to reach an agreement to sell the assets by the end of the year, said the people, who asked not to be named because the talks aren’t public. The proceeds may then be used to fund a possible offer for Pfizer Inc. (PFE)’s infant-nutrition business, said one person. Suntory may seek to buy only water operations in Asia, two people said.

“The water business has decent growth, but it’s slightly below the group average and profitability is also below,” said Marco Gulpers, an analyst at ING Financial Markets with a “buy” recommendation on the stock. “If it meant a swap with another nutrition business, that could make sense.”

Bottled-water is a “strategic” business for Danone, Chief Financial Officer Pierre-Andre Terisse said on a webcast today after the company reported an 11 percent gain in third-quarter sales that beat analysts’ estimates. He declined to comment further. Bottled-water sales on a comparable basis gained 7.9 percent in the quarter, led by Latin America and Asia, Danone said. Cold weather in western Europe weighed on sales there.

Suntory isn’t formally in negotiations for Danone’s water assets, said Midori Takahashi, a spokeswoman for Suntory.

Danone shares rose 2.2 percent in Paris trading today, closing at 46.40 euros. They’ve fallen 1.3 percent this year.

Gauging Interest

Danone officials met with Kirin Holdings Co., Asahi Breweries Ltd. (2502) and Suntory last November to gauge their interest in part or all of the water business, people with knowledge of the matter said at the time. The talks with Suntory over the Asian piece of the unit have advanced the most, one person said.

Talks could collapse and there is no guarantee a deal will be reached. Danone was seeking $5 billion to $7 billion for the entire water business last year, people said then.

Danone’s bottled-water unit had 2010 revenue of 2.87 billion euros ($4 billion), or about 17 percent of the company’s total sales. Closely held Suntory, based in Osaka, Japan, is expanding abroad as the country’s population shrinks.

Suntory bought Frucor, Danone’s Australia and New Zealand drinks unit, in 2009. The two companies also had a water-cooler joint venture in the U.S. that ended in 2005. Suntory is the Japanese partner of Haagen-Dazs ice cream, in addition to brewing beer and selling bottled water, tea and fruit juice-based drinks.

Pfizer may send sales documents about its infant-nutrition unit to suitors in November, people familiar with the matter said last month. A sale may fetch as much as $10.5 billion and attract interest from companies including Nestle SA and Abbott Laboratories in addition to Danone, people said in July.

Mead Johnson Nutrition Co., the world’s largest standalone baby formula maker, has also been named by analysts and investors as a potential takeover target for companies such as Nestle and Danone.

To contact the reporters on this story: Takahiko Hyuga in Tokyo at thyuga@bloomberg.net; Jeffrey McCracken in New York at jmccracken3@bloomberg.net; Matthew Campbell in Paris at mcampbell39@bloomberg.net

To contact the editors responsible for this story: Philip Lagerkranser at lagerkranser@bloomberg.net; Jennifer Sondag at jsondag@bloomberg.net; Jacqueline Simmons at jackiem@bloomberg.net

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