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Why Is Danone Buying WhiteWave?

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Jul. 13 2016, Published 1:28 p.m. ET

Rationale for the merger

As we saw in the first part of this series, French food company Danone is buying US dairy products firm WhiteWave (WWAV) for $56.25 a share in cash. This price works out to be a $10 billion equity value and a $12.5 billion enterprise value when you include net debt.

This deal is about increasing growth for Danone, which is making a bet that organic, non-GMO foods are going to continue to take market share. This transaction doubles Danone’s US presence. WhiteWave also gives Danone exposure to plant-based dairy.

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Management comments

“At Danone, we constantly seek to align our vision of the world, our mission and our businesses: we believe we have a special responsibility, as expressed in our Manifesto, to help and support people in adopting healthier and more sustainable eating and drinking practices and constantly evolve our portfolio of brands and products to achieve this objective. To that extent, we found in WhiteWave the perfect alliance as we both believe in a healthier future and are conscious of our power to lead society forward”, said Emmanuel Faber, Danone CEO.

Faber added, “This unique combination positions us better to address tomorrow’s consumer trends and represents a great opportunity to step change the ambition of our plan for an Alimentation revolution and to accelerate our path towards strong sustainable and profitable growth by 2020. It will allow us to enhance Danone’s growth profile and reinforce our resilience through a broader platform in North America. We are convinced that combining with WhiteWave will create significant value for all of our stakeholders.”

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Gregg Engles, WhiteWave chairman and CEO, said, “Today’s announcement is an exciting next chapter for WhiteWave, bringing together two leading companies with a shared mission of changing the way the world eats for the better. We believe this is a compelling transaction that delivers significant cash value to our shareholders. Danone is a unique company with distinctive capabilities that will enable WhiteWave to reach its next phase of growth. Danone is a great cultural fit for our organization and I am excited for our employees to benefit from the opportunities presented by joining Danone, a leading global food company and the ideal strategic partner to support our future. I am pleased to be joining Danone’s Board to assist with the exciting and unique journey combining our two companies.”

Synergies and earnings impact

Danone expects the transaction to be accretive to earnings within the first year of closing and 10% accretive to earnings when synergies are realized. The companies anticipate realizing $300 million in synergies by 2020.

Investors who are interested in trading the consumer discretionary sector should look at the Vanguard Consumer Discretionary ETF (VCR).

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