Paris - Danone was buying a 40 percent stake in Brookside, east Africa’s top dairy producer, as part of plans to expand in new markets, the French food group said on Friday, at a time when growth is weak in Europe and the economy has slowed in China.
The deal, whose financial terms were not disclosed, was sealed with the controlling Kenyatta family, relatives of Kenya’s President Uhuru Kenyatta, and would boost Danone’s earnings, Emmanuel Marchant, the vice-president for corporate development, said.
In recent years Africa has become a major area of expansion for Danone and other global consumer product firms such as Unilever, Nestlé, Pernod Ricard and Diageo, attracted by the spending power of a growing middle class.
“Africa is an important new frontier for Danone for years to come. We can grow organically but also through acquisitions. We continue to look for nice opportunities,” Marchant said.
The deal with Brookside, which had about e130 million (R1.9 billion) in sales last year and has about 40 percent of Kenya’s dairy market, gives Danone access to the largest milk collection network in east Africa with over 140 000 farmers and a distribution network of more than 200 000 outlets.
“It’s a sensible, long-term investment,” Jefferies analyst Alex Howson said.
He did not expect the deal to add to Danone’s earnings in the short term, however, saying that consumption in the region was relatively low and margins were thin.
Founded in 1993 in Kenya, Brookside sells a range of products from fresh and powdered milk to yoghurt and butter and also exports to Uganda and Tanzania. Danone, which generates 60 percent of its turnover in emerging countries, has invested more than e1bn in Africa over the past two years.
Last year the owner of yoghurt brands such as Activia and Actimel bought a 49 percent stake in Fan Milk International, a west African producer of frozen dairy products and juices with sales of e120m. Danone also paid e550m to take control of Morocco’s top dairy firm, Centrale Laitiere.
Dubai equity firm Abraaj Group, which is Danone’s partner in the Fan Milk venture, is also a longtime investor in Brookside and keeps a 10 percent stake. The Kenyatta family, which before the deal owned a 90 percent stake, will retain half of the capital.
The Kenyatta family business is one of the biggest in Africa, including land holdings, hotels, media and a stake in a bank. It was created in the 1960s and 1970s when Kenya’s first president Jomo Kenyatta acquired land across the country.
Africa has become a battleground for consumer firms hoping to offset weakness in Europe and slowing growth in Asia’s emerging markets.
Danone makes 60 percent of its global revenue in dairy, a sector hit by a spike in milk prices and weak consumer spending in austerity-hit Europe, where the group announced plans last month to shut three plants in Italy, Germany and Hungary.
Danone is trying to rebuild its positions in the high-margin baby food division in China after an infant formula product recall in Asia last year hit sales.
Danone shares were little changed at e56.02 in Paris on Friday, valuing the company at e33bn. – Reuters