Yoplait sale to draw plenty of suitors

PARIS/LONDON Fri Nov 26, 2010 8:13am EST

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PARIS/LONDON (Reuters) - Global food companies are set to square up against emerging market buyers and private equity players to buy half of Yoplait, the world's second-largest yoghurt maker after French peer Danone (DANO.PA).

General Mills (GIS.N), Nestle (NESN.VX) and Lactalis, Europe's largest dairy group, all have sound strategic reasons to pursue the maker of Petits Filous yoghurts and Yop drinking yoghurt, valued at 1.5 billion euros ($2 billion) by its CEO Lucien Fa in a Reuters interview.

Lactalis -- whose unsolicited 1.4 billion euro ($1.9 billion) bid for the whole of Yoplait was rejected last week -- has made no secret it plans to still participate in the sale.

Yoplait's owners -- French private equity group PAI and dairy cooperative Sodiaal -- have rejected the Lactalis bid as too low. Sources say Sodiaal is not so keen to sell as PAI, and any bidder is therefore unlikely to land full control.

Bankers say Yoplait is a clear target for General Mills, the maker of Cheerios cereal and Haagen-Dazs ice cream that has held Yoplait's U.S. franchise since 1977 -- a lucrative license which analysts say General Mills is keen to prevent from falling into rival hands.

"General Mills is the front runner: it needs to be able to retain the U.S. license rights," said Jon Cox, analyst at Kepler Capital Markets.

Yoplait makes nearly half of its 4.5 billion euros in global sales in North America. It is the number one brand in the United States with a 35 percent market share, ahead of Danone's 30 percent.

BRAND REPUTATION

Nestle, the world's biggest food group, could use Yoplait to beef up its position in fresh dairy, fitting in with the company's focus on nutrition and wellbeing. The Swiss group has just 3.5 percent of the global fresh dairy market against Yoplait's 7 percent and Danone's 21 percent.

"Nestle could easily afford 700 million euros for the 50 percent stake and such a deal would have no material impact on key return ratios," Kepler's Cox said.

Nestle has said it preferred share buyback programs and organic growth to acquisitions, but in January it bought Kraft's KFT.N frozen pizza business for $3.7 billion.

Yoplait also has appeal for emerging market players such as China's Mengniu Dairy (2319.HK) or Mexico's Grupo Lala that may want to gain access to more affluent populations in North America and Europe to boost margins, analysts said.

"The purchase of a brand with the reputation and scope of Yoplait would grant them access to a truly global market place," said Euromonitor analyst Ildiko Szalai.

Grupo Lala last year bought Dairy Farmers of America and Mengniu Dairy has been diversifying its offerings from long-life UHT milk to other dairy categories. Mengniu is teaming up with private equity firm KKR for a potential bid, sources said,.

Lion Capital and BC Partners are among the other private equity groups tipped to take a look at Yoplait.

BC Partners, which has held a stake in mozzarella producer Galbani, could be a credible option if Yoplait's owners have to choose between financial buyers, said analyst Pierre Tegner at brokerage Oddo.

Either way, matters could be about to come to a head. PAI expects to receive expressions of interest for its 50 percent stake in Yoplait in January, or possibly even December, people familiar with the matter said.

"The approach from Lactalis may encourage other prospective bidders to show their hand earlier than they were planning," one of the people said.

(Additional reporting by Silke Koltrowitz in Zurich; Editing by David Holmes)

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