Danone, Unimilk to create dairy giant in the CIS

by Eric Schroeder
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PARIS — Danone has agreed to merge its fresh dairy product businesses in the Commonwealth of Independent States (CIS) with those of privately-owned Unimilk, Russia’s second-largest manufacturer of dairy products and baby food. The merged company, Danone-Unimilk, will become the largest provider of dairy products in the CIS, particularly in Russia, where it will account for approximately 21% of the total market.

Danone said it will have a 57.5% stake in the new entity, while the current shareholders of Unimilk will have a 42.5% interest. Combined annual sales of the merged companies are expected to total approximately €1.5 billion ($1.9 billion). Andrey Beskhmelnitsky, current chief executive officer of Unimilk, will chair the new company, while Filip Kegels, current general manager of Danone Fresh Dairy Products in Eastern Europe and Central Asia, will be in charge of operational management.

In merging, the companies will combine complementary geographical presence, product ranges, distribution networks and strengths in production. Danone operates mainly in western Russia, offering products in the value-added health segment, while Unimilk operates mainly in the east, offering powerful brands in core markets. Unimilk has 28 production plants in Russia, Ukraine and Belarus.

“Almost 20 years after taking our first steps in Russia, Danone-Unimilk represents a strategic move for Danone in a region that is offering a promise of growth in the years ahead, and where we will be pursuing ambitious goals for the future,” said Franck Riboud, chairman of Danone. “Our alliance with a highly respected food industry leader that has been remarkably well managed from its beginnings will make for added pace, benefiting consumers and the local economic fabric. It is also an important new step in Danone’s drive to extend business into new geographical markets.”

Mr. Beskhmelnitsky added that the merger fits with Unimilk’s strategy of partnering with the goal of implementing bold ideas.

“Our alliance with Danone, the world leader in fresh dairy products, will increase investment potential of the whole industry, set new standards of efficiency, increase demand for high quality raw milk, and will obviously promote consumer market and the development of our teams,” he said.

The two companies plan to invest at least €500 million ($618.7 million) in the joint venture over the next five to seven years. The transaction is expected to close by the end of 2010, with the operation accretive to Danone earnings per share beginning in 2011.

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