French dairy products group Danone is to sell its HP Foods condiments arm. The iconic UK condiment brands HP Sauce and Lea & Perrins are being offered for sale by their French owner, Danone. While the condiments business looks like an attractive target for smaller regional food players in the UK, the move can also be seen as a reaction by Danone to recent rumours suggesting it may be a takeover target.
Danone acquired HP Foods from industrial group Hanson for £199m (US$374.1m) some years ago. Despite misgivings in some quarters as to whether such typically British products could be successful within a French company, the HP Foods division has prospered under Danone’s ownership. Danone has wisely retained the core identity of the brands – HP Sauce is manufactured with Daddies Sauce in Birmingham, while Lea & Perrins is still produced in Worcester.

HP Foods could attract bids for up £500m, and possible bidders are likely to include such food manufacturing heavyweights as Unilever, Kraft and Heinz. However, it seems yet more plausible that a smaller private equity firm may get its hands on the business.

The HP Sauce disposal in many ways mirrors other recent deals in the food and drink sector – notably Kraft Foods’ decision to sell several UK-focused dessert brands last year, and Unilever’s sale of its Ambrosia brand to Premier Foods in 2003. Smaller players such as Premier, or Associated British Foods, are increasingly looking to build a portfolio of carefully targeted brands that appeal to a certain region or specific segment of the market.

Brands that retain a high profile in the UK, such as HP Sauce, may be virtually unknown abroad – giving global conglomerates such as Danone limited opportunity to continue to drive growth in them long-term. This trend is particularly relevant now at a time of growing consolidation among even the biggest consumer players – Danone itself has been the subject of takeover speculation in the wake of the recent Procter & Gamble/Gillette mega merger. Seen in this context, small is not necessarily beautiful, but disposing of the HP Sauce business will allow the French firm to focus on developing its core yoghurt and water brands. A slimmer, more focused Danone may then be better placed to rebuff any would-be suitors of its own.

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