French law requires that Danone consult its Works Council before signing the agreement, but both companies expect to close the deal by the end of 2007.
ï¿½This proposed acquisition makes great sense for Kraft,ï¿½ said Irene Rosenfeld, Kraft chairman and chief executive officer. ï¿½It will increase our presence in snacksï¿½our fastest growing global segmentï¿½and transform our international business. This growing, high-margin business will give Kraft another cornerstone for faster growth in emerging markets, and the best portfolio of iconic biscuit brands in the world.ï¿½
Experts predict the acquisition will raise Kraftâ€™s status in the snack market, as well as increase its market presence abroad. The acquisition is said to be a strategic move for Kraft because Danoneâ€™s business carries a 27 percent exposure compared with Kraftâ€™s 13 percent exposure. The Danone market is growing at an average of 4.2 percent per year with 36 plants in 20 countries. Last year, Danoneâ€™s biscuit business reportedly earned $2.7 billion in revenue and $525 million in earnings before interest, taxes, depreciation and amortization. Kraft shares dipped by 2.5 percent on July 3, possibly because of the premium Kraft will pay for the business and investors considering the execution risk of the deal, experts said. Experts report Kraft will most likely save 7 percent of Danoneâ€™s annual $200 million in sales over the next couple years, which would equal 8 cents per share in earnings.
ï¿½This transaction will create long-term value for our shareholders, and we expect it to be accretive to earnings per share in the first year,ï¿½ Rosenfeld said. ï¿½Our strong balance sheet enables us to finance this acquisition with debt, while preserving our ability to execute our long-term growth plan, including our previously announced share repurchase program.ï¿½