12 Aug 2010 12:19

Wimm-Bill-Dann buying 18.4% of shares back from Danone for $470 mln

MOSCOW. Aug 12 (Interfax) - Wimm-Bill-Dann Foods (WDB) has reached agreement with France's Danone to buy 18.4% of its shares back for $470 million.

The Russian dairy and juice giant said in a statement that it would not have to borrow to fund the buyback.

Danone has decided to divest its stake in WBD after reaching a deal with its rival Unimilk.

WBD's shares soared 3.6% on the MICEX stock exchange to 1,440 rubles a share by 11:00 a.m. following this news.

Danone owns 8,080,300 WBD shares, around half of them in depositary receipts. The shares are valued at just over $600 million on the New York Stock Exchange, where one share represents four American Depositary Receipts (ADR). The latest deal in the ADR was struck at $18.92 per receipt. The shares were valued at around 11.23 billion rubles on the MICEX at yesterday's closing price of 1,390 rubles a share.

"The deal infers a price of $58 per share and $14.5 per ADR, which is higher than the local market but markedly lower than the ADR price," said Yekaterina Andreyanova of Rye, Man & Gor Securities.

But analysts don't think WBD is buying the shares back at a knock-down price. "Given that Danone's stake consists roughly of ordinary shares and ADRs in roughly equal proportions, the overall cost of the block of shares ought to carry a premium of about 25% against the local price and a 21% discount on the ADR price, said Natalya Kolupayeva, analyst at TCB Capital.

Danone and Unimilk signed a deal on June 18 to combine their dairy businesses in Russia and the CIS. Danone will control 57.5% and Unimilk's shareholders will own 42.5% of the new company, which will have a 21% share of the Russian market for milk products. Pro-forma turnover was EUR1.5 billion in 2009.

WBD co-owner and board member David Iakobachvili told Interfax after the deal that WBD and its shareholders were ready to negotiate a buyback from Danone. Danone withdrew its board member from WBD after a few days, and WBD on August 11 said it was convoking an EGM to elect a new board.

TCB Capital's Kolupayeva said WBD's intention to buy its shares back was a "very correct and timely move" as investors were becoming apprehensive about such a large block of shares finding its way onto the market. WBD's shares were affected when Danone and Unimilk announced their merger: the ADR price fell from $21.58 to $19.61 on the NYSE on June 18.

WBD will be able to close the buyback from Danone once the latter has secured all regulatory approvals for the merger with Unimilk, Marina Kagan, a member of WBD's executive board, told Interfax. "We're ready to buy them right now, but Danone needs approval for the deal with Unimilk," she said.

The main question investors have once the buyback has been complete is how the shares will be used. Analysts reckon there are three possible options: canceling them as treasury shares, offering them in an SPO in Russia to boost local share liquidity and using them as currency for further acquisitions. WBD's Kagan said the company was not ruling any of these options out.

Wimm-Bill-Dann Foods is one of Russia's biggest juice and dairy producers. Sales revenue fell 22.8% last year to $2.18 billion and earnings before taxes, depreciation and amortization (EBITDA) fell 15.1% to $306.6 million, while net profit rose 14.6% to $116.5 million.

WBD founders Gavril Yushvaev, Mikhail Dubinin, Alexander Orlov, Sergei Plastinin and David Iakobachvili owned 42.3% of the shares as of the end of 2009. Yushvaev owned 19.6%, Iakobachvili - 10.5% and Dubinin - 4.7%.