Stonyfield on block as condition of Danones WhiteWave acquisition

Stonyfield on block as condition of Danone's WhiteWave acquisition

Chinese dairy giant Yili has declared its interest in buying Stonyfield but just-food columnist Victor Martino contends there could be more twists and turns in the race for Danone's US organic dairy unit.

The spark for the interest from Inner Mongolia Yili Industrial Group Co. in US organic dairy business Stonyfield could be found in a transaction the Chinese dairy giant had to abort just last month.

In late April, Yili Industrial Group Co., which last week confirmed it is making a bid to acquire the Danone-owned Stonyfield, terminated its planned US$667m purchase of a 37% stake in China Shengmu Organic Milk due to opposition to the deal by Chinese authorities.

Shengmu is China's leading producer of hormone-free dairy products and claims to be the nation's only milk producer certified to meet European standards for organic milk.

The lack of approval from Chinese authorities for the deal was a major setback for Yili because organic dairy is a fast-growing category in China. Additionally, because Yili is China's only dairy company certified to meet European standards, the stake in Shengmu would have allowed exports into the European Union, which is something Yili desires to do in a significant way.

Enter Stonyfield

Beijing closed the door on Yili's plans to take a stake in Shengmu, without question. However, it appears the decision by US regulatory authorities to make the sale of Stonyfield a condition of their clearance of Danone's acquisition of WhiteWave Foods, could have potentially opened a new door for the Chinese dairy company.

Stonyfield, which has nearly $400m in annual revenue in the US, offers at least three key benefits for Yili. First, an acquisition of Stonyfield gives the Chinese dairy company control of the leading brand of organic yogurt in the US. This is a major win in and of itself.

Additionally, Stonyfield gives Yili an important organic dairy and yogurt brand with an American cachet that it could launch in China. This is extremely valuable because Chinese dairy companies have been embroiled in a food safety scandal for a number of years. US organic food products have a strong food safety image in China. 

Organic dairy is also a fast-growing category in China. Stonyfield is a brand recognised by numerous Chinese consumers and would do extremely well in China, with some culturally-appropriate tweaks to product and branding.

Uphill battle

However, strategic desire and money alone won't be enough for Yili to win Stonyfield.

First off, Dean Foods, despite describing reports linking it to the race for Stonyfield, as "market speculation", is likely making a bid. The US dairy giant is the previous owner of WhiteWave, and therefore could have an upper hand when it comes to Danone's choice of a buyer.

Dean Foods also recently entered into a joint venture with US organic dairy cooperative and branded milk company Organic Valley. The relationship can help ensure a source of organic milk for Stonyfield's value-added products, which is an important consideration for the asset's brand value to Dean Foods. As such, when it comes to the bidding, Dean Foods could be willing to pay a premium compared to what Yili is willing to offer. Financial analysts are estimating Stonyfield's acquisition value to be north of $700m.

Other bidders are likely to emerge for Stonyfield, which further could complicate things for Yili.

Local opposition

An added hurdle for Yili in acquiring Stonyfield is an already brewing opposition to a deal by activist consumers and industry players in the US, who oppose a Chinese acquisition of the business, which in their view is a flagship US organic brand. Many of these same people opposed Danone's acquisition of Stonyfield years ago, on the familar grounds of 'Big Food' gobbling up smaller organic.

Based on discussions with industry players close to the process, it's my analysis we're only in the second quarter of the deal process. 

Yili has clearly emerged as the leading suitor for Stonyfield. But Dean Foods and a couple others are playing things much closer to the vest.  

A Yili acquisition of Stonyfield should not be ruled out but keep your eyes on Dean Foods. There also could be a surprise or two coming. In the words of the late New York Yankees baseball great and ballpark philosopher Yogi Barra, "It ain't over until it's over." Stay tuned.

just-food columnist Victor Martino is a California-based strategic marketing and business development consultant, analyst, entrepreneur and writer, specialising in the food and grocery industry. victormartino415@gmail.com / www.twitter.com/nsfoodsmemo.