Thursday, July 21, 2005

Yogurt Is a Strategic Industry

(With Two Updates)

The above-the-crease headline in today's Le Figaro: "Villepin Takes Over the Defense of Dannon". The story refers to reports of an impending takeover bid for Danone - one of the "jewels" of French industry, in the words of the French Prime Minister - by the American PepsiCo Corporation. De Villepin has pledged to "defend the interests of France" in the matter.

To Le Figaro's credit, it points out that the reports of a planned takeover bid by PepsiCo concern mere rumors: "before even being launched - supposing such a project really exists - PepsiCo's takeover bid has become a veritable affair of state." It also points out that despite the Prime Minister's pronouncements seeming to suggest the contrary, Danone "does not figure within the category of so-called sensitive or strategic industries such as the defense industry".

The German government recently undertook considerable efforts to guarantee German control of German shipyards. The French Prime Minister has come to the defense of... yogurt.


Despite the moments of lucidity in its frontpage presentation of the rumored PepsiCo offer, Le Figaro's extended coverage reflects the general hysteria. Thus, for instance, an article titled "Hostile Takeover Bid: Four Key Questions" [link in French], classifies PepsiCo as a "raider" in asking: "What are the 'means' that the French government could mobilize to block PepsiCo - or any other raider...?" Now, of course, in financial journalism the term "corporate raider" typically refers to an investment firm that purchases underperforming or outright unprofitable firms with the intention of selling off some of their assets - otherwise known by German trade-unionists and Social Democrats as "locusts". Obviously, this has nothing to do with any potential PepsiCo-Danone scenario.

It is also interesting to note that the French media in desperately searching for a potential European "White Knight" to save Danone from the clutches of PepsiC0, aka "the Americans", has hit upon Nestlé. Now, in the first place, while from the point of view of geography Nestlé is indeed a firm with its corporate headquarters on the European continent, viz. in Switzerland, from the point of view of law it is no more a "European" firm than is PepsiCo, i.e. Switzerland is no more a member of the European Union than is the US. So, even supposing what in European law is referred to as a "community preference" would be admissible in this case, the preference for Nestlé over PepsiCo does not reflect any such preference but pure and simple anti-Americanism.

In the second place, Nestlé already has a substantial presence in some of Danone's most important markets: notably, dairy products and mineral water. Hence, as Le Figaro points out, the acquisition of Danone by Nestlé would risk giving the latter a monopoly position in the markets in question. An acquisition by PepsiCo presents no such problems. One Danone employee interviewed on French television about the rumored takeover bid sighed: "Anything but the Americans...". Could French and EU authorities, in much the same spirit, prefer the creation of a "European" monopoly? Their recent sanctioning of the acquisition of Vivendi Universal Publishing (VUP) by Hachette-Lagardère suggests the answer is: "yes".

(Note: No, the "Jean Rosenthal" who wrote the highly enlightening account linked just above of the VUP acquisition by Hachette-Lagardère is not me. If you are not familiar with the affair, it is much recommended that you have a look!)

Update #2:

EURSOC provides much useful background - recounting how Danone went from the bete noir of French industry to the current damsel in distress threatened by the "American ogre" - in "Yoghurt War".