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Why the Danone Sale Puts Stonyfield at Risk

March 31, 2017, 5:44 PM UTC

It’s the end of an era.

French dairy company Danone said Friday that it would sell off its Stonyfield brand in order to speed up the closing of its $10.4 billion acquisition of natural food company WhiteWave (WWAV).

The sale should make the deal more palatable to the Department of Justice, which might otherwise object to a single company owning both WhiteWave and Stoneyfield. That arrangement would have further consolidated the dairy industry, especially within the organic segment. 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.

“This definitely throws a complication in there,” Organic Valley CEO George Siemon told Fortune at the time.

For Danone, the parent of U.S. subsidiary Dannon, the two deals bookend a key part of its deal-making history. Danone’s partnership with Stonyfield was one of the first tie-ups between a big food giant and organic upstart—a trend that’s exploded in recent years—while its most recent with WhiteWave is by far the biggest to date in the natural food sector.

Danone first partnered with Stonyfield in 2001 when it took a 40% stake in the company. The French dairy upped its stake to 80% in 2004 and bought out the remainder in 2014.

With $370 million in sales and analysts estimating a purchase price north of $700 million, Stonyfield will very likely end up back in the hands of another Big Food company.

William Chappell of SunTrust pointed to Kellogg (K), Campbell Soup (CPB), Hormel (HRL), Hain Celestial (HAIN), and Pinnacle (PF) as possibilities. Amit Sharma of BMO Capital Markets suggested Dean Foods (DF), Chobani, and General Mills (GIS), which has struggled recently in the yogurt aisle.

Credit-Suisse analyst Laurent Grandet wrote that both PepsiCo (PEP) and Coca-Cola (KO) could be potential buyers. For Coke, which has been trying to expand beyond soda, Stonyfield would add to its Fairlife non-lactose milk business. One major detraction: “Stonyfield is also mostly ‘spoonable’ yogurt and Coke may not be looking to enter the food side of the dairy business,” he said. For PepsiCo, a deal would be a re-entry into dairy after an unsuccessful joint venture with Muller.

With this laundry list of potential buyers, there’s no question that an organic premium brand like Stonyfield will find a new home. Big Food has been on an acquisition spree, buying up innovative smaller companies to entice consumers, who increasingly say they want fresh and unprocessed fare. The problem: Consumers don’t love it when their favorite independent food brand gets gobbled up by the big companies they are trying to avoid. Annie’s brand, for example, was accused of selling out when it sold to General Mills in 2014. Some hardcore customers even called for a boycott.

In contrast, Stonyfield always benefitted from being an early acquisition target. Its initial deal with Danone goes back far enough that consumers either forgot about it or simply didn’t care at the time since it predated the rise of today’s growing food movement and a more mainstream concern over ownership of the food system. The risk of a Stonyfield sale is that it reminds consumers that the company hasn’t been that small, fully independent food company as most have imagined it for more than 15 years.