WhiteWave Really Milked Danone
For investors in the high-flying food stock WhiteWave Foods Co., it's a good thing that its sale to French dairy giant Danone SA looks set to cross the finish line soon.
The companies are in final conversations with the U.S. Department of Justice about Danone's $12.5 billion takeover of WhiteWave, and the deal is on track to close this month, a Danone executive said at a conference Wednesday. WhiteWave, whose products include Silk almond milk and Earthbound Farm organic salad, surged to $55.60 a share following the remarks. That's only about 1 percent below the all-cash purchase price, signaling this is probably a done deal.
Phew, because if it weren't for Danone then WhiteWave shares might just take a bath.
On the one hand, the plant-based food company is still growing revenue at a faster clip than the packaged-food industry leaders because consumer preferences have shifted in its favor -- call it the fresh/organic/healthy/gluten-free trend. Nonetheless, WhiteWave's growth has decelerated. Sales and earnings fell short of analysts' estimates in the latest two quarters -- and by no small amount -- causing full-year expectations to be tempered quite a bit.
This makes Danone's already rich bid look even more over-the-top. The transaction values WhiteWave at 23 times its trailing 12-month Ebitda, among the highest multiples paid for a sizable food or beverage company in the past five years. 1 The median Ebitda multiple is only 12.
Of course, Danone is paying for the growth as its own profit expansion slows. The world's largest yogurt maker has said the revamp of its Activia brand hasn't lived up to expectations, while surging milk prices also work against it. Danone also raised prices too aggressively and invested too little in research and development, Gadfly's Andrea Felsted wrote in December.
Much cost-cutting and a big sales push will be required to justify the payment to WhiteWave. Danone's missteps with Activia don't instill confidence here, which begs the question: Given the price, was this the right transaction for Danone? Or will it regret letting Reckitt Benckiser Group Plc be the one to scoop up baby-formula maker Mead Johnson Nutrition Co.?
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