A Russian media report suggests France-based dairy giant Danone may be interested in buying up the country’s largest baby food manufacturer Progress.

Russia’s Dairy News says, quoting two unnamed sources, that Lipetsk-based Progress is renewing plans to seek a buyer for the business, which owns the brands Frutonyan and Malysh. And its article also claims a government official from the region believes negotiations with Danone are “still at an early stage”.

Dairy News put the value of such a transaction at around US$530m, although it did not say how it arrived at that conclusion. The largest shareholders in Progress are believed to be millionaires Olga Belyavtseva and Svetlana Bortsova. 

Talk of a sale of Progress is not new. Back in 2011, Swiss food giant Nestlé was reportedly touted as a potential buyer but at the time a suitable agreement on the price for the business apparently could not be reached. And last year media speculation abounded again that the Russian company was seeking to offload the business.

When contacted by just-food today (26 November), a spokesperson for Danone, which has a baby-food portfolio including the Aptamil infant-formula brand, said: “We do not comment on market rumours or speculation.” just-food has also approached Progress for a comment but had not received a response at the time of publication.

Food industry analysts have nonetheless reflected on the report. Zurich-based Alain Oberhuber of MainFirst said Danone could increase its market share in Russian baby food to 40% with the acquisition of Progress. 

Progress generated revenues of RUB20.3bn (US$303m) last year and a net profit of RUB3bn, according to Dairy News.

Using the suggested purchase price put forward by Dairy News, Oberhuber based the valuation in euros at EUR465m based on 1.5 times sales and 12 times earnings. He said Danone might also have been a potential suitor for Progress last year had the company not been pre-occupied at the time with the integration of WhiteWave Foods, the US-based food and beverage business it completed a deal for in 2017.

“We think that such an acquisition looks interesting for Danone but it could dilute its ROIC guidance,” Oberhuber wrote in a research note today. “We think that from a product range perspective (baby food, water), the geographic footprint (Russia, emerging market) and the size, the company would definitively be a suitable add-on for Danone. However, Danone’s current net debt/EBITDA level of 3.9x looks stretched. In 2017, while Nestlé might have been in discussions for an acquisition, Danone was still busy with the WhiteWave integration.”