Yakult Declines After Danone's $1.8 Billion Share Sale Plan

(Bloomberg) -- Yakult Honsha Co. shares fell the most in 19 months after Danone, the world's largest yogurt maker, announced plans to sell about $1.8 billion of the Japanese company's stock amid pressure from an activist investor to boost returns.

Yakult will offer as many as 24.6 million shares held by Danone, including over-allotment, in a secondary sale, the Japanese company said. The shares are valued at 195.3 billion yen ($1.8 billion) based on Yakult's closing price on Wednesday. While the move will cut the French company's stake to about 7 percent, from the 21 percent it has held for more than a decade, it will remain Yakult's largest shareholder.

Shares of Yakult tumbled 7.4 percent to 7,350 yen as of 1:53 p.m. in Tokyo, the largest intraday drop since June 2016. Even so, the stock is still up 19 percent in the past year and has jumped eightfold since April 2000, when Danone first said it had acquired some shares in Yakult. Danone rose 0.6 percent in Paris trading Wednesday.

“As Yakult's shares may have been afforded some premium because Danone was the principal shareholder, the stock market could react negatively to the news,” Naomi Takagi and Rei Ihara, analysts at SMBC Nikko Securities Inc., wrote in a report on Wednesday. “However, in our view there is no need to be concerned over a fall in Yakult's growth potential or profitability.”

Read about another Japanese beverage company buying back shares

The stake sale -- which Danone described as being in line with its “disciplined capital allocation” -- comes half a year after activist fund Corvex Management built a stake in the French maker of Activia yogurt and Evian water as it struggles to boost revenue. After the transaction, the companies will continue to work on expanding distribution of the Japanese yogurt-drink maker's products in European markets including Spain. Danone previously sought to raise its stake in Yakult, a move which the Japanese maker opposed.

“We expect that there was slight pressure from the activist Corvex, which could be the reason for this move as strategically it made no sense any more for Danone to have such a large minority holding,” said Alain Oberhuber, an analyst at MainFirst Bank AG.

The French company is selling a stake in a company whose sales are growing at a faster clip.

Based on latest available data compiled by Bloomberg, Yakult's sales rose an average 4 percent in the five fiscal years ended March 2017, while its net margin averaged 6.75 percent. For Danone, its sales expanded an average 2.7 percent and its net margin averaged 6.71 percent in the five-year period ended December 2016, the data show.

Read: Suntory Should Take Note of Yakult and Get on a Diet: Gadfly

The stake reduction will bring Danone more financial flexibility and allow management to focus on its core business, Oberhuber said. It's an ideal time to reduce the stake as Yakult shares have gained 29 percent in the past year, he added.

Danone didn't comment on what it plans to do with the proceeds. Chief Executive Officer Emmanuel Faber has been trying to breathe new life into Danone's largest business, yogurt and fresh dairy, as sales suffered from tougher competition and marketing missteps. The Paris-based firm acquired soy-milk maker WhiteWave for $10 billion last year as it seeks to branch out into faster-growing organic food and drinks.

To contact the reporter on this story: Corinne Gretler in Zurich at cgretler1@bloomberg.net.

To contact the editors responsible for this story: Eric Pfanner at epfanner1@bloomberg.net, K. Oanh Ha at oha3@bloomberg.net, Lena Lee, Subramaniam Sharma