France defends Danone from foreign takeover

20th July 2005, Comments 0 comments

PARIS, July 20 (AFP) - The French government came riding to the rescue of Danone on Wednesday, warning US group PepsiCo to keep its hands off the prized milk giant.

PARIS, July 20 (AFP) - The French government came riding to the rescue of Danone on Wednesday, warning US group PepsiCo to keep its hands off the prized milk giant.

Danone, once described as a national treasure, is now being held up as a core industrial group, a vital link in the strategically important agriculture and food industries and as a symbol of the French way of life.

It is also emerging as a symbol of profound strains within France over the so-called "French social model", strains pulling one way in favour of market "liberalisation" and in the other in favour of protection for jobs and the French way of managing industrial policy.

French Employment and Social Cohesion Minister Jean-Louis Borloo said on French radio that the government would "do everything possible to try to oppose a hostile takeover bid".

PepsiCo, a US empire making carbonated soft drinks and fast-food snacks, has denied a press report that began the latest rumours to the effect that it had acquired 3.0 percent of Danone and has declined further comment.

But the Financial Times newspaper quoted on Wednesday a source close to the US group as saying that a hostile bid by a US company was unlikely to succeed, but the newspaper also said that Danone had international interests and drew only 22.0 percent of its business from France.

The price of Danone shares has leapt on talk of a bid, by PepsiCo or other food groups, that could value the group at EUR 23 billion.

Danone shares, which had gained 10.19 percent on Tuesday, were showing a gain of 5.59 percent at mid-day on Wednesday to EUR 92.50 after the Financial Times reported that PepsiCo had engaged investment banks Morgan Stanley and UBS as advisers and that Danone was taking advice from Lazard.

Analysts have suggested that a number of other groups, among them Coca-Cola, Nestle, Kraft or Unilever, might be provoked into making offers and that the French company, with products ranging from yoghurt to biscuits and bottled water, could be attractive at a significantly higher price than that already reached by the shares.

Borloo, stressing that so far the bid was merely a matter of rumour, hinted that the government was lining up allies.

This remark echoed a suggestion from a parliamentarian from the governing right-wing UMP party on Tuesday, Patrick Ollier, who suggested that a quasi-state savings and investment giant Caisse des Depots and other interests might support Danone.

These warning shots come in a context in which the government is under pressure on one side to accelerate market-orientated reforms of the economy and on the other to respond to deep public anxiety over dilution of job security.

They are also set against renewed pressure from Britain and some other interests at EU level for fundamental reform of farm subsidies. France regards its agriculture and food sector as being of vital strategic interest.

Another aspect raised in some comment in France, where widespread hostility to US business methods is matched by disdain by some for what they regard as American "junk" food, is that PepsiCo might be attracted by Danone because it has built up a brand associated with healthy eating habits.

However, the minister for small and medium companies, Renaud Dutreil has said that Danone had to be seen as an international agro-food group and that its ability to give preference to national interests should not be over-estimated.

French governments have long made clear their desire to discourage foreign incursions into core parts of the economy while orchestrating the development of French groups capable of competing abroad.

French drinks group Pernod Ricard, for example, albeit a private firm, is in the process of acquiring Allied Domecq of Britain for EUR 10.7 billion to create the second-biggest wines and spirits group in the world.

The current government, elected on promises to open up the economy to competition, has recently shown signs of reverting to such interventionism in response to the mood of voters.

Danone has been built up over 40 years by founder Antoine Riboud into a power in the French food landscape. Nine years ago, referring to a landmark in French heritage, he declared: "Danone, it is (like) Chartres Cathedral, and Chartres Cathedral cannot be bought."

Borloo said on Wednesday that Danone was more than a jewel: it was "a special company because it is an emanation of our agricultural production and is also a structural factor behind French and European small and medium-sized companies which work for Danone".

The minister, a leading figure in the government as the architect of a vast plan for urban renewal, continued that Danone was "a very important company for the balance of our country regarding employment, infrastructure across the country for health, and for a style of life".

Copyright AFP

Subject: French news

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