Prepared Foods July 25, 2005 enewsletter

With rumors running rampant of an imminent takeover attempt by PepsiCo, France's food group Danone says it will "fight" to preserve its independence.

In an interview with French financial daily Les Echos, Frank Riboud, CEO of Danone, said he would "guarantee the culture and the independence" of the food group.

"I will fight for that," he said, adding that he has received no takeover bid from PepsiCo or any other company.

"There's been nothing, whether close contact or distant, informal or formal...Does Danone need anyone else? I reply 'No'."

He also said that he respected PepsiCo, but that "a hostile takeover, by whoever, would be likely to make us lose our identity, our uniqueness, our culture."

French Finance minister Thierry Breton, who has kept silent over the Danone issue by refusing to make any comments, told RTL radio that Danone would be protected by the government's scrupulous use of "a framework of rigorous and strict laws."

Danone's rights "will be applied," he said.

French Prime Minister Dominique de Villepin described the food group as "one of our industrial treasures" and promised the French government would defend French interests.

"We plan to defend France's interests", he said after a cabinet meeting.

Also, French Employment minister Jean-Louis Borloo told French private radio Europe 1 the French government will "do all" to prevent Danone from a hostile takeover bid by its American rival PepsiCo.

French magazine Challenges has reported that PepsiCo wanted to buy Danone and had recently bought 8 million shares in the food group. PepsiCo has issued a statement, saying the report was wrong.

"Da-Non" was the resounding cry from protectionist politicians in France over rumors of the takeover. After another surge in Danone's share price, both Danone and PepsiCo declined to comment on the "market speculation" or reports suggesting that PepsiCo has appointed two U.S. investment banks -- Morgan Stanley and UBS -- to advise on a possible deal.

Earlier this month, PepsiCo was forced to issue a statement denying that the company had acquired a 3% stake in Danone. Food analysts said that Danone's best hope for blocking a hostile acquisition would be a merger with a "white knight," such as Swiss confectionery group Nestle.

They said any offer could spark a bidding war if U.S. rival Coca-Cola or American food group Kraft entered the fray.

In non-takeover related news, Danone said it has no plans to stop making biscuits in Hungary. Danone was responding to speculation posted on the Internet and sent via text messages that it would shut down its biscuit-making operations.

"Gyori Keksz (Danone's biscuit unit in Hungary) would take an economically unviable step if it would give up the production and sale of its market-leading products," the company said in a statement.

Gyori Keksz has two plants, one in Gyor and one in Szekesfehervar, both in northwest Hungary.

In 2001, Danone announced plans to shut down the Gyor factory and shift production to the Szekesfehervar plant. It scrapped the plans after widespread protest against the planned closure.

In addition, Groupe Danone executive Emmanuel Faber said the company's board had decided to sell off its stake in U.S. unit DS Waters in its entirety.

Faber was chief financial officer until July 1, when he was replaced by Antoine Giscard d'Estaing.

Faber was appointed as executive vice president of the Asia-Pacific region, but led the conference call following the release of first-half results.

Faber said Danone had developed a number of options during the period but that “the board opted for a sale of the entire stake in DS Waters.”

“This is what is currently being implemented. We are in advanced talks... (and) this is the basis on which we have provided for an additional charge,” he said.

The group announced earlier that it has made a provision of 200 million euros ($241 million) for its U.S. home and office water delivery business, held in 50-50 joint venture DS Waters with Japan's Suntory Ltd.

Giscard d'Estaing appeared to rule out any further charges related to the unit, saying the figure was “the right one to execute well the disposal program that is underway.”