Netherlands-based Royal Numico specialises in baby food and clinical nutrition products under the brand names Nutricia, Milupa, Cow & Gate and Dumex, among others. The company employs about 13,000 people.
Danone is shifting focust to target growing consumer demand for healthier products. The company also wants to target high growth markets in which it can be a dominant player to offset rising commodity and input costs.
The all-cash offer, which has been accepted by Numico's board, comes just a week after Danone said it will sell its biscuit arm to rival Kraft for €5.3bn
Danone's chairman Franck Riboud said acquiring Numico would allow the company to move ahead of its rivals within the competitive marketplace.
"The combination of the two groups will create a unique food company - the one with the clearest and most powerful health positioning in the world," he stated. "With this project, we are designing a new Groupe Danone, enhancing dramatically its growth profile and its growth potential for the years to come."
Riboud said the capture of Numico would allow it to cement its position as predominantly, a health and nutrition company. Danone expects the acquisition would give it at least a top three presence in some of the world's largest markets for nutrition and infant based products.
Riboud cited an ageing population, growing awareness of the importance of nutrition to health, and the rising costs of medical care, as the key factors that would continue to drive consumer demand for healthier products in developed markets.
Numico last year posted profits of €483m, and posted operating profit margins of 18.4 per cent. To maintain this profitability, Danone said it would retain Numico's business model, with the operations becoming "a third pillar" alongside its dairy and beverage operations.
Riboud emphasised that dairy will remain Danone's key focus. Once the Numico purchase is completed, dairy will account for 51 per cent of the company's sales. Nutrition will account for another 22 per cent, just behind beverages with a 27 per cent share.
Besides sharpening its focus on nutrition, Danone would also increase its presence within the infant food market, where it has a limited presence.
Numico also has a strong portfolio in the fledgling market for healthcare nutrition, which Danone added it would also move to exploit. The segment would grant the company a further focus for production of foods designed for the needs of babies and diabetic patients.
When questioned following the announcement yesterday, Riboud failed to be drawn into whether the Numico offer marked the end of Danone's current restructuring plans.
In recent weeks press reports have linked the company to a number of ventures particularly in India's bottled water market. The company is currently second in the global market for mineral water products behind rival Nestle.
Danone plans to published official details of its offer in August 2007. Shareholders of both companies need to approve the deal, which Danone expects to be completed in October this year.