Leading consumer groups including Danone, the world's largest yogurt maker, as well as Nestle NESN.S and Unilever ULVR.L, have come under pressure from some shareholders who say they should be producing better returns.
Danone, whose brands include Activia and Actimel as well as Evian water, said it would sell 14 percent of Yakult, equating to two-thirds of its holding, as part of a strategy to have a more disciplined approach to how it invests its capital.
Gregoire Laverne, a fund manager at Roche Brune Asset Management which owns Danone shares, said the move was positive.
“Danone is sending a strong signal,” Laverne said. “It is meeting its commitments for a better capital allocation. Now the question is: what will it do with the cash?”
Danone said it would comment further on the possible use of the proceeds when the deal is completed in March.
It has held the Yakult stake for more than a decade but there has long been speculation it would look to divest. The sale will be carried out via a market transaction initiated by Yakult and is expected to be settled in March.
Danone has lagged the growth of some rivals, largely due to weakness in its European dairy business in the face of sluggish demand and private-label competition.
“Indiscriminate investment has been one of the big turn-offs of the Danone investment case since the acquisition of Numico in 2007. Consequently we regard this as a positive development,” wrote RBC Capital Markets analysts, retaining a “sector perform” rating on Danone and a price target of 65 euros.
Even though consumer goods groups typically offer up reliable sales and dividends, they have also had to grapple with a slowdown in some markets, pressure on prices and shifting trends from consumers over eating and leisure habits.
Danone last year bought U.S. organic food maker WhiteWave for $12.5 billion in a bid to attract affluent health-conscious customers and boost margins. It also sold dairy business Stonyfield to Lactalis for $875 million.
Danone has sometimes been touted as a takeover target. In August 2017, hedge fund Corvex Management bought a 0.8 percent stake, following similar steps at Nestle and Procter & Gamble PG.N.
In 2005, the French government stepped in to fend off a rumored bid by Pepsico PEP.O by publicly describing Danone's business as a protected "strategic" industry.
Yakult also announced a 36 billion Japanese yen ($336 million) share buyback in which Danone will participate. The French group will retain a 7 percent stake in Yakult, remaining its largest shareholder.
Danone also said it was looking at distributing Yakult products in European markets, with Spain as an initial test market. Its shares rose 1.3 percent to 64.71 euros in early trading. The stock had hit a record 72.13 euros in December, but has slipped some 8 percent so far in 2018.
($1 = 107.2200 yen)
Additional reporting by Martinne Geller and Thyagaraju Adinarayan; Editing by Laurence Frost and David Holmes
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