Danone is in "early-stage" talks over a possible deal

Danone is in "early-stage" talks over a possible deal

Danone has remained tight-lipped on a report that it has entered talks to sell its water business, but analysts believe a deal could make sense for the group.

The Evian and Volvic bottled water group's representatives are in "early stage" talks with Japan's drinks giants over a possible deal, the Wall Street Journal reported yesterday (9 November). Interested firms are thought to include Kirin Holdings and Asahi Breweries, as well as possibly Suntory, the owner of Orangina Schweppes.

Citing "people familiar with the matter", the paper said that a sale could fetch up to US$7bn.

Danone declined to comment on the reports when contacted by just-drinks today. But, an analyst told just-drinks that a sale is possible and that potential suitors for the business could also include The Coca-Cola Co or PepsiCo.

Credit Suisse Securities analyst Charles Mills said Danone's beverage business is not "hugely" important to the group's overall sales and profits. He said that the division is "different operationally" to the rest of the group, which is predominantly dairy and baby food.

However, he added that Danone would likely only sell up if it is looking to acquire something else.

"[Danone] has seen the shape of the business change consistently for over a decade, the grocery business, cheese business, beer, biscuits have all gone," Mills told just-drinks. "And businesses have come in, so there have been regular changes. Normally a disposal is accompanied by an acquisition, you swap a part of the portfolio. So I think the way that the City would look at it is, if Danone is selling [the water business], why is it selling it now particulary, is it because there is something else that they might like to buy?"

He added: "M&A is pretty active at the moment generally. We've seen it [in] all these businesses in the consumer world. Interest rates are very low at the moment and M&A is a good source of trying to get some growth."

Danone's water business recorded sales of EUR2.23bn (US$3.07bn) in the first nine months of 2010 compared to sales of EUR2.02bn last year. Group sales reached EUR12.71bn from EUR11.03bn in 2009.