Paris, May 26 - Danone's planned 3 billion euro ($4.2 billion) rights issue will help it snap up smaller rivals hurt by the financial crisis and aid its growth through the downturn, group executives said on Tuesday.
The French food group said late on Monday it planned to launch a sale of new shares to existing shareholders in coming days, subject to internal and regulatory approvals, sending its shares more than 7 percent lower.
Some analysts were surprised by the size of the issue and cautioned the benefit of the move could be wiped out if minority shareholders in Spain sell their stock to Danone.
"This call to the market aims to enhance the group's financial and strategic flexibility," Oddo Securities analyst Pierre Tegner said, adding the amount was "a little over the top, particularly since the market will not be able to ignore the value of minorities in Spain," estimated at 2.3 billion euros.
Danone, the world's biggest yoghurt maker, said its first rights issue in 22 years would mainly be used to cut net debt which reached 11.26 billion euros at the end of 2008 after its 12.3 billion purchase of Dutch food maker Numico in 2007.
The rights issue follows deeply discounted billion-euro issues by French groups Pernod Ricard, Lafarge and Saint-Gobain earlier this year.
The move will help Danone "travel through the more difficult macroeconmic times of the next several quarters and half-years and still continue to build the momentum of the growth model," co-Chief Operating Officer Emmanuel Faber said.
The economic downturn could provide opportunities to buy rivals hit by tough trading conditions, Faber told a conference call with analysts, adding that deals would be worth tens or hundreds of millions of euros and no more.
"There's absolutely no plan for any major acquisitions in the coming weeks or months," he said. Danone planned to be a "proactive contributor" in the consolidation of the medical nutrition industry over the next few years, he added.
Danone aimed to expand its dairy business in countries with significant growth potential. Acquisitions were not likely in the near future in its bottled water business.
SPANISH OPTION
Danone sought to reassure investors the rights issue was not meant to cover the cost of repurchasing 44 percent in Danone Spain from minority shareholders, following the death of leading shareholder and founder of Danone in France Daniel Carasso, 103, earlier this month.
"We have no indication whatsoever that there could be any acceleration of the 'put' option by any of the significant shareholders of Danone Spain at the moment," Faber said.
Danone shares fell 6.7 percent to 36.955 euros by 0924 GMT, making them the worst performers in the French benchmark CAC 40 index, which was down 1.3 percent.
"This surprising announcement is clearly bad news. We estimate dilution to reach at least 9 percent, without pricing a likely discount," a Paris-based trader said.
Danone stock is down 14 percent so far this year, lagging the DJ Stoxx European food and beverage index, up 1.2 percent.
Danone reiterated its full-year sales and margin targets and stuck to its forecast for underlying, fully diluted earnings per share (EPS) at constant exchange rates to rise 10 percent this year, excluding the dilutive effect of the issue of new shares.
The company said the rights issue would lead to a 10 percent full-year EPS dilution.