Danone abandons Russian dairy business with 1 billion euros written off

Danone abandons Russian dairy business with 1 billion euros written off

Written by Sylvia Aluizzi and Richa Naidoo

PARIS (Reuters) – French food company Danone said on Friday it would relinquish control of its dairy business in Russia in a deal that could lead to a write-off of up to 1 billion euros ($978 million).

By joining a long list of global companies making costly exits from Russia due to the war in Ukraine, Danone will offload a company that accounts for about 90% of its operations in Russia, where it will maintain its infant feeding unit.

โ€œThis is the best option to ensure the long-term viability of the local business,โ€ Danone’s statement said, adding that the Russian dairy unit accounted for about 5% of the group’s net sales in the first nine months of the year.

A source familiar with the matter said that Danone may retain a stake in the dairy business, Russia’s largest. The company did not reveal who the business would be transferred to, while a Russian analyst identified a number of potential suitors.

โ€œThe Board of Directors has just begun a process that leads to a transaction that could be a full sale or a partial sale. But at the end of the process, the point of Danone is that they are no longer running the business and are not in effective control and that business has been separated from the groupโ€

Several Western consumer goods companies including Nestle and Procter & Gamble (NYSE: NYSE) have continued to provide essential food and medicines to Russia while also facing pressure from consumers and activists to cut all ties with Moscow.

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This move is the second of its kind this week from a major Western company, and comes after Nissan (OTC ๐Ÿ™‚ emptied its assets into the Russian state, incurring a loss of about $687 million.

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

CEO Antoine de Saint-Afrique, who took over the position in September last year, said the company would partner with non-operating firms under the transformation plan launched this year.

“Russia is clearly an asset that they have to get out of,” Pierre Teigner, an analyst at brokerage Oddo BHF, said in a note.

“It’s not just because Russia is a company with a low profit margin and poor growth. It’s mainly because this asset has generated a lot of distractions over the past 11 years for senior management.”

Other areas in which the group can review non-core operations include liquid milk and basic dairy products in Brazil, Argentina, Mexico and Morocco, as well as organic milk in the United States, baby meals in France and Italy, as well as microwater, Teigner said. Operations in Spain and Poland.

All options

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

In March, weeks after Russia’s invasion of Ukraine, the company said it would continue to produce basic dairy and infant nutrition products there, but it cut other ties with the country during the war.

It also said it has terminated all investments in the country and will not receive any cash, dividends or dividends from its business there.

The Essential Dairy & Plants Division (EDP) has 7,200 employees and 12 production sites.

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Mikhail Mishchenko, head of the Dairy Market Research Center in Russia, named three potential domestic candidates: Ikoneva, Komos and Molvist.

He said he believed the most likely winner would be Econiva, one of the country’s largest suppliers of unpasteurized milk, which also enjoys state support.

But he said the assets could be broken up and distributed across market players.

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

(1 dollar = 1.0224 euros)

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