Danone in talks on $7.2 bln biscuit sale to Kraft

By Caroline Jacobs

PARIS (Reuters) - French food group Danone (DANO.PA) is in exclusive talks to sell its biscuit and cereal unit for 5.3 billion euros ($7.2 billion) in cash to Kraft Foods Inc (KFT.N), the world's biggest cookie maker, they said on Tuesday.

Kraft's bid for Danone's cookie unit, which includes the LU, Prince and Tuc brands, will give the U.S. food giant a stronger foothold in Europe and in emerging markets.

It will allow Danone to focus on the health range in its fast-growing dairy and drinks business, pay off some 2.9 million euros of debt and raises cash for future possible acquisitions.

The offer is more than double the 2.2 billion euros in sales the unit made last year. Danone's stakes in its Indian and Latin American businesses are not part of the deal.

Danone and Kraft, maker of Oreo and Chips Ahoy! cookies, Philadelphia cheese and Milka and Cote d'Or chocolate, expected a final deal could be reached in the last quarter of 2007.

Danone Chairman and Chief Executive Franck Riboud said at a news conference with his Kraft counterpart Irene Rosenfeld he would address any concerns the French government or trade unions might have about the deal, which he described as amicable and transparent.

Kraft said the European biscuit headquarters would stay in the Paris region for the foreseeable future and it does not plan to close any of Danone's biscuit manufacturing facilities in France for at least three years after the final deal is signed.

France represents 40 percent of Danone biscuit sales.

French economic patriotism has surfaced when major French companies became subject to speculation they could be bought by non-French rivals. Rumors in 2005 that U.S. soft drinks firm Pepsi (PEP.N) might bid for Danone led the government to say it would aim to shield French companies from hostile overseas bids.

TAKEOVER TARGETS

Danone shares rose as much as 4.2 percent after they resumed trading after an earlier suspension. The stock added 1.9 percent to 62.13 euros by 1204 GMT, taking gains to 8.5 percent this year and bringing its performance almost in line with the DJ health index.

"The multiple at which they sold to Kraft is good and for Danone it's good to get cash for acquisitions, such as Numico," a senior analyst at Cheuvreux said, rating the stock a "buy".

Some analysts have said the baby food business of Dutch food group Numico NUMCc.AS could fit with Danone's dairy business and its Bledina baby food, which sells in France and Belgium.

Other takeover targets analysts have mentioned include Russian consumer foods group Wimm-Bill-Dann (WBD.N), in which Danone owns an 18.4 percent stake, as well as the remaining stake in its Chinese Wahaha beverages joint venture.

Riboud left open what Danone plans to do with the cash it fetches, if the deal goes ahead, on top of its already healthy balance sheet.