Paris, May 25 - Danone plans to raise about 3 billion euros ($4.2 billion) by selling shares to existing shareholders to reduce net debt, the French food group said on Monday.
The company expects to launch the rights issue in the coming days, subject to internal and regulatory approvals, co-Chief Operating Officer Emmanuel Faber told reporters on a conference call.
"The proceeds of the rights issue will be used principally for the reduction of Danone's net financial debt," Danone said in a statement.
The move will also enable the company to strengthen its capital structure and increase its flexibility to support organic growth and fund small and medium-sized acquisitions, Danone said.
The group's ratio of debt to core earnings (earnings before interest, tax, depreciation and amortisation) will decrease to 1.7 from 2.8 after the rights issue, Faber said.
The company also reiterated its full-year target for like-for-like sales growth of a few points below its medium-term guidance of 8-10 percent and a like-for-like improvement in its operating margin.
Danone stuck to its forecast for underlying, fully diluted earnings per share at constant exchange rates to rise 10 percent this year, excluding the dilutive effect of the issue of new shares.
The move follows a 1.04 billion euro rights issue by French spirits group Pernod last month to help cut its more than 12 billion euros of debt. The company offered shareholders a 36 percent discount.
French cement group Lafarge and building materials group Saint-Gobain have also launched rights issues of 1.5 billion euros this year, with deeper discounts.
Faber said Danone would fix terms for its rights issue when it was launched.
Danone shares rose 1.2 percent on Monday to 39.615 euros, giving the company a market value of around 20 billion euros. The stock is down around 9 percent so far this year.
Danone is being advised by JPMorgan and Calyon, it added.