Stonyfield Yogurt In Londonberry, NH
Stonyfield Yogurt founder and chairman Gary Hirschberg at the company's facility in Londonderry, NH, in May.  Boston Globe via Getty Images

Danone’s Stonyfield Sale Is the Latest Twist in the Yogurt Wars

Jul 05, 2017

Danone’s announcement on Monday that it's selling Stonyfield to family-owned French dairy Lactalis for $875 million was a bizarre twist of fate for the yogurt industry.

With the sale, Stonyfield’s one-time parent becomes its biggest competitor. “It’s a strange set of circumstances,” Stonyfield founder and chairman Gary Hirshberg told Fortune this morning.

The sale was set in motion last July when Danone announced its intention to acquire natural foods company WhiteWave for $10.4 billion. Then in March, Danone said it would sell Stonyfield to speed up the deal's closing; the Department of Justice might otherwise object to a single company owning both WhiteWave and Stonyfield. As Fortune noted when the deal was first announced, WhiteWave owns Horizon, the largest organic milk brand. Organic Valley, the second-biggest organic milk brand, is the largest supplier to Stonyfield. Stonyfield also licenses its brand name to Organic Valley for its milk.

Danone first partnered with Stonyfield in 2001 when it took a 40% stake in the company—one of the first tie-ups between a Big Food company and a small upstart, a strategy that legacy food companies have come to deploy countless times in recent years. In many ways it paved the way for the WhiteWave deal, the biggest in the natural and organic space to date. (The French dairy ultimately upped its stake in Stonyfield to 80% in 2004 and bought out the remainder in 2014.) Danone declined to comment for this story.

Stonyfield helped Danone see the potential of the organic sector and was “integral in helping them understand the WhiteWave opportunity,” says Hirshberg. He says he brought Danone executives to ExpoWest, the preeminent natural food confab, and educated them about the space. “We were very helpful at a high level helping them think through the strategy,” says Hirshberg.

Now as Danone and Stonyfield prepare to face off as competitors, Hirshberg notes that Danone executives "know virtually everything there is to know about us, but the reciprocal is also true.”

The sale process was run completely by Danone and Lazard, Hirshberg says, adding that a number of companies—in the high teens—initially asked to look at the company's books. In the end there were six semi-finalists, he says. Among them: China's largest dairy company, Yili, but Hirshberg said that Stonyfield's "little New Hampshire farm story might seem a little stretched with an owner from Beijing."

Lactalis, with more than $18 billion in sales, is the "biggest dairy company no one has ever heard of," Hirshberg says. According to Euromonitor International, it is the second-largest dairy player in the world after Danone, but is only the ninth biggest yogurt company globally. Lactalis does about a billion dollars of business in the U.S., primarily in cheese, according to Hirshberg, and is therefore “pretty complementary.”

Lactalis was not one of the initial companies analysts pegged as a potential buyer. Instead, industry watchers speculated that one of the struggling U.S. Big Food companies would swoop in at the opportunity to add a respected natural and organic brand to its portfolio. "I was expecting one of the Bigs to get to the finish line, and certainly I spent a lot of time talking to several of them," Hirshberg says. "But I think it probably took a private company to step up to the plate in this way." Stonyfield had $370 million in sales in 2016, and the sale price is a multiple of about 20 times EBITDA.

Hirshberg said that Lactalis also was one of the few companies that has the resources available to invest in Stonyfield to keep them competitive. The funding will be needed as the yogurt aisle is hit by what Hirshberg calls "a tremendous amount of innovation and not enough space." As a sign of how competitive the market has become, Euromonitor data shows that although Stonyfield's brand share decreased in 2016, it still registered 3.5% value sales growth from 2015 to 2016.

Hirshberg also thinks that the Amazon-Whole Foods deal will change the yogurt game. "Whole Foods (wfm) has been the incubator for an awful lot of companies," he says, but "price is going to become the dominant consideration at Whole Foods under Amazon (amzn)." He says that's going to make it harder for new companies to get a foothold in the grocery store. That will give an advantage to bigger companies that can benefit from scale. He says to expect other acquisitions in the sector as a result.

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