End of Yakult, Danone alliance dampens takeover talk

TOKYO Fri Apr 26, 2013 8:35am EDT

TOKYO (Reuters) - Japanese drink maker Yakult Honsha Co Ltd (2267.T) and Danone SA (DANO.PA) scrapped a longstanding alliance on Friday, denting speculation that the French food-and-drink company might seek to buy out its partner.

Yakult and Danone, the Japanese company's biggest shareholder, said they were replacing their strategic alliance with a looser cooperation framework.

Scrapping the alliance removes any bar on Danone, the world's largest yoghurt maker by sales, from launching a hostile bid for Yakult, which makes fermented-milk drinks. Danone owns 20 percent of Yakult.

Before Friday's announcement, Yakult shares had been buoyed by speculation that Danone might be seeking a merger with Yakult, if not a hostile takeover or raising its stake, said Mitsushige Akino, executive director and chief fund manager at Ichiyoshi Asset Management.

But they plunged by their daily limit of 15 percent before paring losses to end 5.7 percent lower at 4,420 yen after the announcement, a sign investors think a bid is now less likely.

Tokyo's benchmark Nikkei index declined 0.3 percent. Danone shares were trading 0.8 percent lower in Paris.

A person familiar with the situation said Danone is unlikely to try to raise its stake, given its view that the stock is already pricey and Yakult's high proportion of stable shareholders.

Hostile takeovers in Japan are particularly difficult, in part because of the country's intricate web of cross-shareholdings, with many stakes taken to cement long-term business ties, not to maximize profit.

The French company, which has a large overlap with Yakult on some products, said last year it was interested in raising its stake, according to Japanese media reports at the time.

The stock's partial rebound shows "the situation is still unclear," Akino said. "We don't know yet if Danone is dissolving the strategic tie-up with Yakult to wash their hands of the whole affair or to launch a hostile takeover bid for Yakult."

Danone, whose brands include Actimel and Activia, said it will remain "a major shareholder and long-term partner of Yakult." Danone will keep three executives on Yakult's board, both companies said.

The new cooperation framework, which replaces an alliance struck in 2004, will continue collaboration in markets such as India and Vietnam on probiotics and other products.

"We couldn't narrow our differences in such areas as corporate culture and marketing techniques," Yakult chairman Sumiya Hori told a Tokyo news conference.

Yakult vice president Yoshihiro Kawabata said the companies "have eliminated constraints and will continue our cooperative relations with a high degree of freedom."

(Reporting by Ritsuko Shimizu; Additional reporting by Nobuhiro Kubo, Emi Emoto and Tomo Uetake; Writing by William Mallard; Editing by Erica Billingham)

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