S&P downgrades Danone's credit rating
its credit ratings on French company Danone, based on
the projected increased debt due its proposed acquisition of
Numico.
The agency lowered the long-term corporate credit and senior unsecured debt ratings to 'A-' from 'A+', and the ratings have been placed on CreditWatch pending clarification of Danone's financial policy. The downgrade affects Danone's ability to raise funds on the debt market, as it makes it more expensive for the company to issue bonds and other instruments to finance any other acquisitions. "The funding decision indicates a change in Danone's financial policy toward a substantially more leveraged profile," said Standard & Poor's credit analyst Vincent Allilaire. Standard & Poor's ratings downgrade follows a huge company reshuffle, which includes an €12.3bn offer made for Dutch nutrition group Numico and a sale of its biscuit division to Kraft. However Danone's excellent business risk profile is not "enhanced" by the Numico acquisition at this stage, according to Standard & Poor. The group's adjusted funds from operations to net debt is not expected to recover above 25 per cent until about 18 months after the acquisition, the agency stated. The group remains strongly cash generative however, currently maintaining a high level of on-balance-sheet cash and liquid resources which amounted to more than €2bn at the end of June 2007, the agency reported. Standard & Poor's also said that the Numico acquisition could be beneficial for the company over a longer period of time, as it fits in with Danone's strategy to increase its presence in the health and wellness market. Two days ago Danone tendered a €12.3bn offer for Dutch nutrition group Numico, which specializes in baby food and clinical nutrition, only a week after it announced the sale of its biscuit division to rival Kraft for €5.3bn "With this project, we are designing a new Groupe Danone, enhancing dramatically its growth profile and its growth potential for the years to come," Danone's chairman Franck Riboud said last week. Danone agreed last week, saying that the capture of Numico would allow it to concentrate on healthy products. "The combination of the two groups will create a unique food company - the one with the clearest and most powerful health positioning in the world," Riboud said. According to Reuters, Danone has already acquired 26.4 percent of Numico, compared to five per cent last Tuesday, and more than 21 millions shares in Numico have been traded daily in the last five days. The company have been linked to a number of other ventures recently, particularly in India's bottled water market. The company is currently second in the global market for mineral water products, behind rival Nestle, but has refused to comment on rumours over the Indian market.
