Danone SA share price up, considers selling its nutrition arm to Hospira Inc. for $5 billion

Danone SA, the worlds largest yogurt maker, rose as much as 2.6% on Monday, after the Financial Times reported yesterday that the company is in talks to sell its medical-nutrition unit to the Illinois-based Hospira Inc. The deal, which is valued at about 5 billion US dollars could raise funds for new acquisitions and strengthen the growth of the French dairy producer. The US-based Hospira manufactures injectable medicines and sources said the two companies are still negotiating.

A possible deal may provide the French company with fresh proceeds for acquisitions to bolster its growth prospects, according to Patrik Lang, an analyst at Julius Baer Group Ltd. The analyst also suggested that Danone may be interested in acquiring the US-based Mead Johnson Nutrition Co.

“The question is how Danone would invest the proceeds of a sale,” Lang said, cited by Bloomberg. He also added: “It’s possible a bigger acquisition is imminent — Mead Johnson would be a candidate.”

A possible acquisition of the Mead Johnson, which has a market cap of about $19 billion, would strengthen the positions of Danone in the baby-food business, where it competes with Nestle SA.

At the same time, the US-based Hospira would use a possible acquisition of Danones medical nutrition unit to move its tax base to Europe in a deal which is known as a tax inversion. If completed, the deal would mark the latest in a series of inversion deals designed to circumvent US taxes.

As reported by the Financial Times, the two companies have been in talks for few weeks now and, according to people with knowledge of the situation, were discussing details about a potential cash and stock deal that would value Danones medical-nutrition unit at about 5 billion US dollars. The people, however, cautioned that the talks were still ongoing and the companies may not reach a deal.

In May, Bloomberg reported that Nestle and Fresenius SE were interested in acquiring Danones medical-nutrition assets and were having talks with the French dairy producer about a possible sale. It is now unclear if the two companies are still regarding to acquire Danones unit.

Last week, Danone reported that its adjusted operating profit tumbled 20 percent in the first half of the year as milk prices jumped 18 percent and the company had to deal with a recall in Asia.

A spokeswoman for Danone declined to comment a possible deal, while representatives of Hospira did not answer e-mailed requests for comment during normal business hours.

Danone SA was gaining 0.58% to trade at 55.38 euro per share by 12:55 GMT in Paris, reducing its one-year loss to 3.62%. The company has a market value of 35.45 billion euros. According to the Financial Times, the 27 analysts offering 12 month price targets for Danone SA have a median target of 53.00, with a high estimate of 65.00 and a low estimate of 44.00. The median estimate represents a -3.74% decrease from the last price of 55.0