UPDATE 1-Danone in talks to sell bottled water unit -report

* Business could fetch between $5 bln and $7 bln - WSJ

* Danone declines comment

* Bankers doubt Danone is seller of water business

(Adds bankers, analyst, trader comments)

By Dominique Vidalon and Soyoung Kim

NEWS YORK/PARIS, Nov 9 (Reuters) - France's Danone is in early talks for the possible sale of its bottled-water business that includes the iconic Evian brand to Japanese beverage firm Kirin Holdings Co Ltd 2503.T, the Wall Street Journal reported on Tuesday.

Other possible suitors for part or all of the business include Suntory Holdings Ltd [SUNTH.UL] and Asahi Breweries Ltd 2502.T, and the business could fetch between $5 billion and $7 billion if sold in its entirety, the report said, citing people familiar with the matter.

Danone, the world’s No.2 bottled water producer, declined to comment. Spokesmen at Kirin, Asahi and Suntory were not immediately available for comment.

Danone is unlikely to agree to a deal unless it gets a rich offer and it is quite possible there will be no deal, the report said.

“Such an operation seems unlikely to us as the price mentioned seems pretty low and Danone does not need the cash anyway,” one Paris-based trader said.


Two bankers that advise European consumer companies were skeptical that Danone would want to sell its water business.

“There is perennial speculation about Danone’s water business, but I don’t think they want to sell and I’m not aware of talks with anyone,” one of the bankers said.

Analysts said that Danone is only likely to sell its Evian and Badoit bottled waters business if there was a big acquisition it wanted to make, similar to in 2007 when it sold its low-margin LU biscuits business to Kraft Foods KFT.N and bought the Dutch babyfoods group Numico. Danone shares, however, rose as much as 3.1 percent in afternoon trade in Paris, with strong volumes, on hopes a deal could be in the cards.

“The stock is rising on the WSJ story. But I don’t see Danone parting with Evian, such a national pride,” a Paris-based trader says.

A sharp drop in bottled water sales in developed markets in 2008 and 2009 has led some analysts to argue that Danone should sell the division, which made 17 percent of 2009 group sales of 15 billion euros, to focus on yoghurts, baby food and medical nutrition.

Chief Executive Franck Riboud, however, has repeatedly stressed bottled water in developed countries fits the group’s strategy to own products with health benefits.

The Water unit posted third-quarter like-for-like sales growth of 8.7 percent, the strongest since the fourth quarter of 2007, helped notably by favourable weather in Japan and in Europe. (Additional reporting by Victoria Howley and David Jones in London and Blaise Robinson and Raoul Sachs in Paris) (Reporting by Soyoung Kim in New York and Dominique Vidalon in Paris; Editing by Gerald E. McCormick and Jon Loades-Carter)