French food company Danone will shed control of its dairy food business in Russia, it said on Friday, adding that the deal could lead to a write-off of up to 1 billion euros ($978 million).
Joining the lengthening list of global companies making costly exits from Russia over the war in Ukraine, Danone will be offloading a business that represents about 90% of the company’s operations in Russia, where only its infant nutrition unit will be retained. “This is the best option to ensure long-term local business continuity,” a Danone statement said, adding that the Russian dairy unit accounted for about 5% of the group’s net sales in the first nine months of the year.
Shares in Danone rose more than 1% in early trading, with analysts welcoming news that the company was reducing its presence in Russia, saying this could herald a wider of reshuffle of its operations. Chief Executive Antoine de Saint-Affrique, who took the helm in September last year, said the company would part with non-performing businesses under a turnaround plan he launched this year.
“Russia is clearly an asset they had to exit from,” Pierre Tegner, analyst at broker Oddo BHF, said in a note. “It is not only because Russia is a low-margin business with poor growth. It is mainly because this asset has generated a lot of distraction over the last 11 years for top management.”
Other areas where the group could review non-core operations include liquid milk and basic dairy products in Brazil, Argentina, Mexico and Morocco, Tegner said, as well as organic milk in United States, baby meals in France and Italy, plus small water operations in Spain and Poland. The French company is the world’s largest yoghurt producer and controls Russian dairy brand Prostokvashino.
Danone said in March that it would continue to produce essential dairy and infant nutrition products in Russia but had cut other ties with the country over its war in Ukraine. The company said at the time that it had ended all investments in Russia and would not take any cash, dividends or profits from its business there.
Danone did not disclose to whom its Essential Dairy and Plant-based (EDP) division would be transferred but said the transaction is subject to regulatory approvals and would result in deconsolidation of the business from its accounts. ($1 = 1.0224 euros)
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