Danone, the French dairy giant, supercharged its longstanding campaign to expand in Russia by agreeing a tie-up with Unimilk which will be the country's market leader.

Danone, the world's biggest yoghurt maker, is to take a 57.5% stake in the joint venture, and contribute the majority of directors, after folding in its existing operations in the former Soviet countries and spending a further E120m boosting its equity.

The balance of the tie-up will be owned by Unimilk, Russia's third-ranked dairy producer, which will contribute brands including milk market leader Prostokvashino, and its operations, which extend into neighbouring Belarus and Ukraine.

The joint venture will be "the leader for dairy products in the [former Soviet Union] as a whole and particularly in Russia, where it will account for around 21% of the total market", Danone said.

Pierre-Andre Terisse, the Danone finance director, told analysts that the region was one "where the potential penetration and growth of [dairy] both in terms of volume and value... is among the most significant".

Stake sale? 

However, the deal raises a question over Danone's relationship with Wimm-Bill-Dann, the Russian-based, and New York-listed, dairy and milk operator, in which it has an 18% stake.

Many investors had expected Danone to use this stake as a conduit for achieving its long-held ambitions in Russia which, unlike most western European markets, is enjoying rapid growth in dairy.

A spokesperson for the French group told Agrimoney.com that the transaction was "indeed changing the environment Danone is in.

"Danone will review its position in Wimm Bill Dann and will take the time to do it carefully," a process that Oddo Securities said heralded an exit.

"The success of Danone in Russia in fresh dairy products had already significantly reduced the need for their stake," the broker said.

"With Unimilk, we can consider that Danone is clearly on its way out" of Wimm-Bill-Dann.

Full ownership

Oddo added that the Unimilk tie-up was a "a strategically interesting merger for a limited price". Danone said the deal valued Unimilk at 10 times earnings before interest, tax, depreciation and amortisation (ebitda).

And it contains a mechanism through which Danone may be able to gain full ownership, through an option on the Unimilk stake.

"In 2022, Danone will be able to take its call option - that is to say to ask current Unimilk shareholders to sell their shares to Danone," the spokesperson said.

From 2014, meanwhile, Unimilk investors will have the right to ask Danone to buy them out.

Danone shares stood 0.4% higher at E44.275 in lunchtime trade in Paris.