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Current Position:Home » News » Beverages & Alcohol » Beverages » Topic

Danone buys Kenyan dairy firm stake to add African markets

Zoom in font  Zoom out font Published: 2014-07-21  Origin: Reuters  Views: 16
Core Tip: French food group Danone said it was buying a 40 percent stake in Brookside, East Africa's top dairy producer, as part of plans to expand in new markets while growth is weak in Europe and the economy slows in China.
French food group Danone said it was buying a 40 percent stake in Brookside, East Africa's top dairy producer, as part of plans to expand in new markets while growth is weak in Europe and the economy slows in China.

The deal, whose financial terms were not disclosed, was sealed with the controlling Kenyatta family, relatives of Kenya President Uhuru Kenyatta, and will boost Danone's earnings, Emmanuel Marchant, vice-president for corporate development, told Reuters by phone on Friday.

Africa in recent years has become a major area of expansion for Danone and other global consumer product companies such as Unilever, Nestle, 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 2013 sales of around 130 million euros ($176 million) and has a share of 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. But he did not expect the deal to add to Danone's earnings in the short term, however, saying that consumption in the region is relatively low and margins are 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 a billion euros 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 120 million euros. Danone also paid 550 million euros 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 the rest 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 companies hoping to offset weakness in Europe and more recently slowing growth in Asia'a 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 last month announced plans to shut three plants in Italy, Germany and Hungary.

Danone is also 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 down 0.4 percent 55.98 euros in Paris.

 
 
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