French food group Danone offered 12.3 billion euros ($16.8 billion) for Dutch rival Numico to forge what it said will be the world's largest health and nutrition company.
Danone's all-cash offer on Monday worth 55 euros a share for Europe's largest maker of baby food highlights whirlwind consolidation in the sector. It come only days after Danone agreed to sell its biscuits business and three weeks after talks with the Dutch maker of Milupa, Nutricia and Cow & Gate baby foods began.
I think we can say it is a real friendly deal... We have a really good geographical complementarily, Danone Chief Executive Franck Riboud said in a conference call.
I think it is a fair price for a unique company and a unique combination, Riboud added.
Only last week, Danone said it was in exclusive talks to sell its biscuits business for 5.3 billion euros to Kraft Foods Inc, the world's biggest cookie maker.
Some analysts had already said the baby food business of Numico would fit well with Danone's dairy business and its Bledina baby food, which sells in France and Belgium.
Last week I sold a business, this week I bought a business. I don't know what I am going to do next week, Riboud said, asked whether Danone planned to buy any more companies.
Numico Chief Executive and former Danone employee Jan Bennink welcomed the deal, but said on the same conference call he would resign as soon as it was completed.
Once you have been CEO it is quite hard not to be CEO...Two captains on the same ship is probably not ideal so we came to an agreement that on the deal's closure I will probably step down.
Founded in a small Dutch dairy in 1896, the group's products range from infant milk formula, early food for babies and young children to specialized nutrition for babies. It has expanded rapidly in recent years buying Britain's Cow & Gate in 1981 and Milupa in Germany during 1995.
Shares in the firm had risen almost 11 percent to a six-year high of 45 euros earlier and were then suspended at 44.50 euros.
Danone's shares ended down 3.3 percent at 59.48 euros.
Danone's offer is 38 percent above Numico's closing share price on Friday and values it at around 10.6 billion euros based on the number of shares currently issued.
Based on diluted shares and stock options, resulting in a count of 223 million shares, the companies said the deal valued Numico at 12.3 billion euros.
Analysts said after the biscuit deal, Danone's dairy side will account for two-thirds of sales and its Evian and Volvic bottled water for the other third, and they had expected significant acquisitions in the larger dairy area.
Numico offers attractions in line with Danone's goals to focus on health-related businesses with robust organic growth and high margins, said one analyst.
The deal, backed unanimously by both boards, is expected to result in a definitive agreement within weeks, the firms said.
Riboud said he expected to see more benefits from increased sales than from cost savings in the Numico deal.
Danone is entitled to a break fee of 50 million euros if Numico withdraws its recommendation for the deal or an unsolicited offer from another group is accepted.
Danone became engulfed in French politics two years ago when then Prime Minister Dominique de Villepin's government responded to rumors of a bid from U.S. drinks giant PepsiCo by announcing a policy of economic patriotism.
Riboud declined to say whether he detected any interest from PepsiCo which has always declined to comment on the matter.
There is nothing to answer because there is nothing on the table, Riboud said.
Numico was advised by Goldman Sachs and Citigroup and Danone by Lazard and BNP Paribas.
(Additional reporting by David Jones, Alexandra Hudson, Caroline Jacobs, Astrid Wendlandt, Sitaraman Shankar)