French dairy group Lactalis launched a 3.4 billion euro ($4.9 billion) takeover bid for Italy's Parmalat , raising pressure on Italian investors who want to keep the company in domestic hands.
Lactalis will pay 2.6 euros per Parmalat share to create the world's biggest dairy group, with estimated combined yearly revenues of 14 billion euros, it said in a statement on Tuesday.
Lactalis, Europe's biggest dairy group, bought 29 percent of Parmalat in March, just under the limit for a mandatory takeover bid. The inroad sparked alarm in Rome that one of Italy's best-known companies could fall under foreign control.
The French group, which also owns Italian cheese brands Galbani and Locatelli, said it planned to keep Parmalat listed on the Milan bourse and maintain the headquarters in Italy.
Lactalis decided to make the takeover offer because of a government decree that thwarted its bid to control Parmalat, it said. The French company had said in March it had no takeover plans but the decree delayed a shareholder meeting at which Lactalis was poised to take control of the board.
The offer represents a premium of 21.3 percent on Parmalat's share price over the past 12 months, Lactalis said.
Lactalis did the best thing they could do. The next step will probably be an Italian counter-bid, Simone Ragazzi, analyst at Italy's Centrobanca, told Reuters.
The Lactalis takeover bid came just hours ahead of Italian Prime Minister Silvio Berlusconi's meeting with French President Nicolas Sarkozy in Rome.
Now on a political level, (the bid) will make some noise, a Paris-based dairy analyst said on conditions of anonymity.
Berlusconi's center-right government has been worried about French moves on Italian companies. Italian and French shareholders are battling for control of Italian power generator Edison , in which France's EDF is poised to own a majority stake.
French luxury goods group LVMH Moet Hennessy Louis Vuitton SA also is buying jeweler Bulgari .
The Italian government has explored creating a French-style fund to invest in strategic companies using state holding Cassa Depositi e Prestiti (CDP).
A source close to the issue said CDP would hold a conference call with Italian banks Intesa Sanpaolo , UniCredit and Mediobanca about the Lactalis offer.
However, the extent of a possible Italian counter-bid remains unclear, Ragazzi said. Italy's confectionery group Ferrero and domestic diary group Granarolo have had cold feet about joining an Italian consortium due to ownership concerns.
We note that without the involvement of Ferrero or Granorolo, the industrial logic of a wholly Italian bid is significantly weakened, MF Global European Equity Research said in a note.
Granarolo was not immediately available to comment.
Shares in Parmalat were up 11.33 percent at 2.574 euro per share at 1057 GMT.
2.60 euros is a fair price. The premium is not that great but the stock rose sharply previously, said Gertjan Van Der Geer, senior investment manager at Swiss private bank PICTET.
Lactalis can put Parmalat's cash to good use, he told Reuters.
Parmalat has been seen as an attractive target in part because of 1.4 billion euros in cash accumulated mostly through litigation settlements following the group's rebirth from its spectacular collapse in 2003.
Analysts say Parmalat, known for its long-life milk, could be strategic for Lactalis to grow into non-cheese activities and expand in markets like Canada, South Africa and Australia where it has little or no presence.
Sales in Italy account for around 15 percent of the group's total revenues, analysts say.
European Union regulators are following Italy's protectionist efforts to ensure they comply with the bloc's merger rules, the EU's antitrust chief said this month.
(Additional reporting by Ian Simpson and Nigel Tutt, Dominique Vidalon in Paris, Editing by Dan Lalor)
($1 = 0.6883 euro)