Nestle is Leading Contender for Danone’s Medical-Nutrition Business

14 May 2014 --- The world’s biggest yogurt producer Danone is reported to be in advanced talks to sell its medical-nutrition business to Nestle SA as rival Fresenius SE is believed to have dropped out of the running.

Danone’s medical-nutrition unit, which includes brands such as Fortimel, reportedly gets 67% of its sales from Europe and its biggest markets are the UK and France. This division of Danone makes tube-feeding products for the sick and it also develops foods to alleviate the symptoms of diseases such as Alzheimers. Most of the sales from this unit are sold on prescription.

Danone is believed to be planning to expand its baby food business once it has disposed of its medical-nutrition unit, and the acquisition of infant formula producers is likely to be top of the agenda for Danone, according to reports. The French group, which is being advised by JPMorgan, is likely to raise up to 5bn euros from a sale of this unit.

Currently Nestle is the market leader in baby milk powder with a 27% share of the market, versus Danone’s 15%. Danone is likely to work on significantly boosting its share of the market once it has freed up the funds to do so.

A sale of the medical-nutrition arm to Nestle is likely to face some anti-trust issues in some western European markets where the two companies operate.

Medical nutrition is the smallest sector in Danone’s four main businesses, which include yogurt (such as the Activia and Actimel brands), water (Evian) and baby food. The average organic growth rate for this sector is reported to have slowed down over the years, from 11% between 2007 and 2011 to 5% in the last three years.

While Fresenius is believed to have dropped out of the running for this business, Nestle could still have other contenders. The US-based Baxter and Abbott is one company that has been speculated to be interested in the acquisition.

Earlier this month Fresenius reported a drop in its first quarter earnings as the German healthcare group was hit by spending cuts in the United States and China. A decline in sales of its blood substitute product, HES, also hit the group hard after European regulators are reported to have advised physicians to no longer use it for certain patient groups.

Representatives for Danone, Nestle and Fresenius declined to comment on the sale of Danone’s medical nutrition business.