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 The Medical Nutrition business, which also makes products like hypo
allergenic baby food, could attract interest from peers such as
Abbott <ABT.N>, Nestle <NESN.VX>, Baxter <BAX.N> or Fresenius <FREG.DE>,
the people added.
JPMorgan <JPM.N> has been asked to find a buyer for the European
market leader, which in 2012 posted sales of 1.3 billion euros and
earnings before interest and taxes of 231 million euros.
A sale could enable Danone to focus on its main businesses Baby
Food, Dairy and Waters, all in need of investment due to slowing
growth in Europe and troubles in Asia.
On Wednesday, Danone boosted its stake in China's top dairy firm,
aiming to tap into booming local demand and secure greater control
over supply quality in a region which has been hit by food safety
scares.
Danone was also reported to be looking at a stake in East Africa's
top dairy producer, Brookside Dairy, according to a recent press
report that came a few months after it bought 49 percent of West
Africa's Fan Milk Group.
Danone declined to comment on the potential acquisition and the
potential divestiture. JPMorgan also declined to comment.
The world's leading yoghurt maker suffered a series of setbacks in
China last year, including being fined for anti-competitive
practices after a probe into price-fixing. It also recalled infant
formula products in Asia due to an unfounded health scare stemming
from New Zealand-based supplier Fonterra Co-operative Group <FCGHA.NZ>.
Sector bankers said they expect the tube feeding business could be
valued at more than 10 times its expected earnings before interest,
taxes, depreciation and amortization.
"This could go for well above 10 times, low to high double digit
figures," one banker said.
Based on that expectation the business could be worth roughly 3
billion euros, the sources said.
By comparison, Nestle agreed to buy the medical nutrition business
of Swiss group Novartis <NOVN.VX> for $2.5 billion or 28 times the
unit's operating earnings in late 2006.
Earlier this week, Nestle agreed to sell 8 percent of its stake in
L'Oreal <OREP.PA> and took over control of their Galderma
dermatology joint venture. This fuelled speculation that Nestle
could be interested in buying more medical assets. But it already
has a large stake in the medical nutrition business, which combines
elements of food and pharmaceuticals.
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"I'm not sure about demand for the asset because of potential
anti-trust issues. Nestle was already in the space so they paid up
because it was strategic for them," said one of the sources who
spoke on condition of anonymity. "All of the major players will have
a certain degree of anti-trust issues, they might not be able to buy
the whole thing."
Danone's medical nutrition business provides liquid food for
hospital patients unable to eat solids, food supplements for elderly
people with failing appetites and tailor-made products for allergy
sufferers or those with conditions such as epilepsy.
Brands include Neocate, a range of replacement formulas for infants
allergic to cow's milk, and Nutrini drink, a line of energy drinks
for children with faltering growth.
For the $30 billion medical nutrition market as a whole, about
three-quarters consists of nutrition products delivered orally or
through a feeding tube, according to analysts from Exane BNP
Paribas.
That portion of the market is led by Abbott Laboratories <ABT.N>,
with a 30 percent share, followed by Nestle <NESN.VX> with 25
percent and Danone with 16 percent. Smaller players include
Fresenius <FREG.DE> and Mead Johnson Nutrition <MJN.N>.
The remainder is in nutrition delivered intravenously, and is
dominated by Baxter International <BAX.N>, Fresenius, B Braun
Melsungen <BBRMG.UL> and Hospira <HSP.N>.
Growth at Danone's Medical Nutrition arm has been slowing from an
annual average of 10 percent, reflecting tough conditions in Western
Europe where health budgets are tight.
In the first six months of 2013, the business increased sales by 5.5
percent, while its operating margin added 65 basis points to 19.3
percent.
Overall, Danone expects to post an 2014 EBITDA of 3.7 billion euros,
about the same level it reached in 2012, according to estimates from
Thomson Reuters I/B/E/S.
($1 = 0.7312 euros)
(Additional reporting by Martinne
Geller, Frank Siebelt, Ludwig Burger and Dominique Vidalon; editing
by Jane Merriman)
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