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Rumored Danone Medical Food Sale To Hospira Would End Ambition

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The Financial Times reported on Sunday that French food group Danone is in talks with Hospira of the United States to sell its medical nutrition activities in a $5 billion deal. This follows earlier reports this year that the group had mandated JP Morgan to prepare a sale.

While there are clear advantages for Hospira, the result of a scission of Abbott in 2004, it is less evident for the French group – apart from any cash to invest in other activities.

Hospira would obtain extra scale, a good brand reputation and could move its tax base to Europe.

Danone could put more bang behind its baby food business. Danone is the world-leader in medical nutrition. The operations make up some three percent of group sales with brand names such as Fortimel, Infatrini, Nutrison, Respifor, Nutricia or SHS.

The Goose That Laid The Golden Eggs

But why selling a unit that has above average profit margins and great growth opportunities in a greying world with advances in medical care in developing countries?

I can think of just a few reasons. Medical nutrition is sold in a very different way than yoghurt or baby food. Danone is a mass marketing machine and medical is about relationships, trust, supply chain issues, very strict quality control and regulations.

There is also an overlap between drugs and food, the research is very specialised and costly and there could be insurance issues about the responsibility of the food supplier in dying patients.

It could be that Danone has discovered it can not justify the investments needed to maintain and grow its position in this market. Danone would be able to focus on “happiness” products, such as its dairy, baby food and water products where it battles with Nestlé of Switzerland.

 

Danone is already a stream-lined food group. Its roots go back to 1919 when Isaac Carosso started selling yoghurt in Spain after having seen how popular the product was in Greece. His son Daniel Carosso started the French unit in 1929.

After a series of mergers, Antoine Riboud became the chief executive in 1966 and launched the company on a global expansion path. Along the years, Danone sold its packaging business, beer, wines and others. Riboud bought the LU cookies business and Belin snacks.

His son Franck takes the reins in 1996. In 2007 he sells the LU biscuit business and launches a bid on Dutch baby food and medical nutrition group Numico. In 2010 it buys Medical Nutrition of the U.S. and in 2012 it tries to acquire the baby food business of Pfizer , but loses out to Nestle .

Danone put a lot of money and effort behind building up the medical and baby food business.

If it does conclude a sale , it will have dairy products, water and baby food. Its brands include Danone, Actimel, Activia, Evian, Volvic and Bledina, to name the biggest ones.

With $5 billion, it could continue to expand in markets such as Russia, China and Africa. But it would be giving up a world-leading position in a very attractive market segment.