Danone to divest Russian dairy business for €1 billion

  • Danone to transfer control of the dairy business in Russia
  • The Russian dairy sector accounts for 90% of Russian operations
  • Danone may continue its stake in the dairy business – source
  • Many western food companies continue to supply basic goods to Russia

PARIS, Oct 14 (Reuters) – French food company Danone ( DANO.PA ) will take over its dairy business in Russia, which could lead to a write-down of up to 1 billion euros ($978 million). He said on Friday.

Joining the list of international companies making expensive exits from Russia because of the war in Ukraine, Danone will cut a business that represents 90% of its operations in Russia, where it maintains a baby nutrition division.

“This is the best option to ensure long-term domestic business continuity,” said Danone’s statement.

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A source close to the matter said that Danone could retain its stake in Russia’s largest dairy business. The company did not specify to whom the business will be transferred, a Russian analyst identified several possible people.

“The board has started the process leading to a transaction that could be a full sale or a partial sale. But at the end of that process Danone’s intention is that they are no longer running the business and are not in effective control, and the business has been released from the group,” the source said.

Many Western consumer goods companies, including Nestle ( NESN.S ) and Procter & Gamble ( PG.N ), continue to supply essential food and medicine to Russia and have faced pressure from consumers and activists to cut all ties with Moscow.

The move is the second such move by a major Western company this week after Nissan forfeited its assets to the Russian state and suffered losses of around $687 million.

Shares in Danone rose more than 1% in early trading, as analysts welcomed the news and said it heralded a broader change in its operations.

Chief executive Antoine de Saint-Afrique, who took over in September last year, said the company would part with underperforming businesses as part of a turnaround plan launched this year.

“Russia is clearly an asset that should have been exited,” Pierre Tegner, an analyst at brokerage Odo BHF, said in a note.

“It’s not just because Russia has low margins and poor growth. It’s mainly because this asset has created so many distractions for senior management over the last 11 years.”

Other areas where the group is reviewing non-core activities are liquid milk and basic dairy products in Brazil, Argentina, Mexico and Morocco, as well as organic milk in the United States, baby food in France and Italy and small water operations in Spain and Poland.

All options

The move is the first since the company announced in April that it was evaluating all options in Russia.

Weeks after Russia invaded Ukraine in March, the company said it would continue to produce essential dairy and baby nutrition products, but cut ties with the country because of the war.

He also said that he has ended all investments in the country and will not take any money, profits or gains from business activities there.

The essential dairy and plant (EDP) division has 7,200 employees and 12 production sites.

Mikhail Mishchenko, head of the Russian Dairy Market Research Center, named three domestic bidders: Econiva, Komos and Molvest.

He said he thinks the winner will be EcoNiva, one of the country’s largest suppliers of whole milk, and one that has government support.

But the assets can be divided and shared by all market players, he said.

The three Russian companies did not immediately respond to requests for comment. Danone declined to comment.

($1 = 1.0224 EUR)

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Reporting by Tasilo Hamel, Sylvia Aloysi and Richa Naidu Editing by David Goodman, Josephine Mason and Mark Potter

Our standards: The Thomson Reuters Trust Principles.

Richa Naidu

Thomson Reuters

A London-based reporter covering retail and consumer goods, analyzing trends including supply chain coverage, advertising strategies, corporate governance, sustainability, politics and regulation. He has previously written about US retailers, major financial institutions and coverage of the Tokyo 2020 Olympic Games.

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