Business - Money 101

CHICAGO (AP) ― Kraft Foods Inc. said Tuesday it has offered $7.2 billion in cash to acquire the cookie and cereal division of French food company Groupe Danone SA in a deal that would give America's biggest food and beverage company an even larger foothold around the globe.

Danone said in a statement that its board is considering the bid received Monday on an exclusive basis.

A deal would give Kraft, the maker of Oreo cookies, popular overseas brands such as LU, Petit Dejeuner, Tuc, Mikado and others.

"This proposed acquisition makes great sense for Kraft," Chief Executive Irene Rosenfeld said at an early morning news conference from Paris.

But Kraft shares fell more than 2 percent on news of the offer with some analysts saying the company was paying too much.

If the deal is approved, Kraft would double the size of its business in China, while boosting its position in Eastern Europe, Russia, Malaysia and Indonesia. About three-quarters of the Danone units' business is in Western Europe.

If the transaction is completed, the acquired brands will join Kraft's massive snack food portfolio — its largest division that accounts for nearly one-third of its revenue. Among Kraft's other popular brands are its namesake cheeses, Maxwell House coffee and Oscar Mayer hot dogs.

"Today's announcement does indicate that Kraft is determined to be more aggressive in pursuit of its portfolio restructuring, with an emphasis on international operations, and will not be solely focused on "health and wellness, "Andrew Wood, a European food analyst at Sanford C. Bernstein wrote in a research note.

Danone Chief Executive Franck Riboud said shedding the cookie division would allow Danone to concentrate on its dairy products and water divisions.

"The offer of Kraft Foods represents a strong strategic and industrial opportunity for the biscuits and cereal products business," he said.

Some analysts praised the deal as a way to bolster Kraft's global cookie and cracker business, but others said the acquisition is over priced.

"Although the acquisition of Danone's Global Biscuit operation moderately improves Kraft's international margin profile, business mix, and European scale, on balance we have a negative view of the transaction," Morgan Stanley analyst David Adelman wrote in a research note. "Nevertheless, in our view Danone's biscuit operations is generally a mediocre business. "

Proceeds from the sale would be used to speed up current internal development projects, to develop new products, expand into new territories or new food platforms, and possibly for mergers and acquisitions, Riboud said.

Under French law, Danone must consult with its Works Council before entering into a definitive agreement with Kraft.

Under the terms of Kraft's offer, the Danone cookie division would continue to be based in France. Kraft agreed to keep Danone's French cookie manufacturing facilities in operation for at least three years after the transaction is signed.

The offer does not include Danone stakes in cookiet businesses Bagley in Latin America and Brittannia in India.

The deal could be concluded in the last quarter of 2007 and is subject to regulator approval.

Shares in Danone rose 1.3 percent to 61.71 euros ($84.07) on Tuesday in Paris.

Kraft shares fell 84 cents, or 2.3 percent, to $34.71 in midday trading Tuesday.

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