Danone shares plunge after PepsiCo deny rumors

25th July 2005, Comments 0 comments

PARIS, July 25 (AFP) - Shares in French dairy group Danone plunged eight percent Monday after French market regulators said PepsiCo had denied it was preparing a hostile takeover bid.

PARIS, July 25 (AFP) - Shares in French dairy group Danone plunged eight percent Monday after French market regulators said PepsiCo had denied it was preparing a hostile takeover bid.

"PepsiCo is not preparing a financial operation for Danone," a spokeswoman of the French market authority AMF told AFP.

Speculation that PepsiCo would make a hostile bid for Danone and ensuing protests by the French government had pushed the price of shares in the French group up by 11.26 percent last week to their close on Friday of EUR 88.45.

On Monday the price of shares in Danone fell 8.20 percent to EUR 81.20 in midday Paris trade in an overall flat market.

Investors fled the stock after a report in the French financial daily Les Echos that cited the AMF as saying late Sunday that in recent consultations with PepsiCo, the US soft drink and snack maker had confirmed it was not currently preparing an "operation of that type".

The AMF, which had received a complaint of stock manipulation Friday from an association of small shareholders in Danone, also said it was "closely" monitoring the share price movements and number of shares traded.

Danone denied it had orchestrated the share rally.

"Allegations that say it was Danone which brought about the speculation on the stock last week are absolutely without foundation," a spokesman said.

The stock has risen sharply after a report in the French magazine Challenges in early July which claimed PepsiCo had acquired a three percent stake in Danone and was preparing a bid.

The report, though denied repeatedly by PepsiCo, and subsequent rumours were given credence by the market, and over the next few weeks prompted vigorous commitments to maintain Danone's independence, from Danone's chief executive Franck Riboud and top French politicians alike.

On Monday, Finance Minister Thierry Breton said the Danone affair "should serve as a lesson to business chiefs".

In an interview with newspaper Le Monde dated Tuesday, Breton said of takeover bids: "It is primarily the responsibility of business chiefs to avoid them if they are not in the interest of the employees and the shareholders".

Danone shares also were dragged lower by broker downgrades, dealers said.

CA Cheuvreux downgraded the stock to 'underperform' from 'outperform' and Dutch broker ING downgraded it to 'hold' from 'buy'.

The French broker said the negative management and company reaction to the talk of a bid would weigh on attitudes to the stock in coming months.

"We think that investors will urgently want management to provide alternative impetus to that of a prospective takeover," the broker said, pointing to the "wall of hostility" which had been built up.

It said the sharp reduction in its target prices reflects the fact that Danone shareholders were now trapped in a stock which is immune to takeover opportunities.

Ahead of the Les Echos report, ING downgraded the shares to 'hold' from 'buy' as it said any deal to buy Danone could be difficult.

"French political support for Danone's independence, reportedly stimulated by Danone itself, makes any future bid unlikely (except by a French company)," the Dutch broker said.

Copyright AFP

Subject: French news

0 Comments To This Article