Danone stock rises on talks to sell biscuits division to Kraft

Danone is in exclusive talks to sell its biscuit and cereal unit to the world's biggest cookie maker, Kraft Foods, for ?5.3 billion ($7.20 billion) in cash, the food groups said on Tuesday.

Kraft's widely rumored bid for Danone's cookie unit, which includes the LU, Prince and Tuc brands, will give the U.S. food giant a stronger foothold in Europe and in emerging markets. It also allows Danone to boost further the healthy range of its fast-growing fresh dairy and drinks business.

The offer is higher than the 3.5 billion to 4 billion euros given in several media reports and is more than double the 2.2 billion euros in sales the division made last year.

The sale of the biscuit and cereal division excludes Danone stakes in biscuits businesses in Latin America and in India. The groups expected a definitive agreement to be reached in the last quarter of 2007.

Under the preliminary deal, Kraft said it did not plan to close any of Danone's biscuit manufacturing facilities in France for at least three years after the transaction is signed and said the European headquarters would stay in the Paris region for the foreseeable future.

Danone shares rose as much as 4.2% after the stock resumed trading following its earlier suspension.

"The multiple at which they sold to Kraft is good and for Danone it's good to get cash for acquisitions, such as Numico," a head of research at Cheuvreux said, rating the stock a "buy".

Analysts have pointed out, though, that Danone's healthy balance sheet does not require it to sell assets to expand.

Still, some have said the baby food business of Dutch food group Numico could fit with Danone's dairy business. Danone makes the Bledina baby food brand, which sells in France and Belgium.