Tuesday, May 24, 2022
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Danone: asset rotation in China

(AOF) – Last Friday evening, Danone (-1.4% to 55.3 euros) announced that it had reached an agreement with Mengniu to sell him its 25% stake in Yashili and its 20% stake in the joint -venture Inner Mongolia Dairy. At the same time, Danone announced the acquisition of 100% of Dumex Baby Food Co Ltd, a Chinese infant milk manufacturer, owned by Yashili.

These transactions follow the sale of Danone’s 9.8% minority stake in Mengniu announced in 2021 and their completion will put an end to the partnership between Danone and Mengniu.

China remains a highly strategic country for Danone, and this announcement will notably enable the food group to strengthen its capacity to produce infant formula locally. In line with its capital allocation priorities, the proceeds expected from the operation will be dedicated to its debt reduction.

Stifel confirmed its Buy recommendation and its target price of 66 euros on Danone. The broker hailed the first sign of asset rotation, with the group’s chief executive starting to walk the talk.

Last March, Antoine de Saint-Affrique announced his intention to rotate around 10% of the company’s portfolio as part of his “Renew Danone” strategy. The objective is to increase the profitability of the company and the return to the shareholder.

According to Stifel, the net proceeds from the three transactions, which he estimates at around 60 million euros, will be used to reduce the company’s indebtedness. The transaction therefore simplifies the balance sheet, strengthens the strategy in Specialized Nutrition and frees up additional capital, underlines the research department.

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