WWAV Whitewave Foods Company (The) (delisted)

By Kelsey Gee and Heather Haddon 

Danone SA's $10.4 billion takeover of WhiteWave Foods Co. is the latest in a flood of food industry deals as longtime supermarket standbys face pressure to adapt to the new ways consumers eat.

Food giants that have struggled to turnaround stagnating sales are targeting smaller food companies that have tapped into consumers' growing desire for simpler, more natural products.

Surging sales of products like Silk soy and almond beverages and Horizon organic milk have helped nearly quadruple WhiteWave shares since its initial public offering in 2012.

"The reality has changed on the shelf. Looking at organic and non-GMO [products], they are now much faster-growing than conventional" items, said Emmanuel Faber, Danone chief executive on a conference call about the deal Thursday. He said the sale of those products are growing around three times as fast as their conventional counterparts and are no longer "niche."

Hormel Foods Corp. made what it said was its largest ever acquisition last summer when the company paid $775 million for organic-meats company Applegate Farms LLC and the year before General Mills Inc. paid $820 million for Annie's Inc., known for its organic macaroni and cheese, in moves that catered to the growing population of organic customers.

The explosion of food merger and acquisition activity last year led to more than $116 billion worth of deals involving U.S. companies, the largest total dollar amount in at least two decades, according to data from Dealogic.

So far this year, food and beverage deals valued at more than $43 billion have been announced. It is lower than the $74 billion worth of deals during the same period in 2015, but is still the second highest total overall since 2008, according to Dealogic data. The drop in deals this year is partly due to tighter credit conditions and lower valuations of companies, according to a recent report by consultants A.T. Kearney Inc.

Whitewave's acquisition by the French dairy giant pushed up stock prices Thursday for other food companies with a focus on organic or fresh foods.

Shares in Hain Celestial Group Inc., which sells herbal teas and vegetarian snacks, rose more than 7% on Thursday, while Skinny Pop popcorn maker Amplify Snack Brands Inc.'s shares rose over 3% in after-hours trading.

Lifeway Foods, Inc., a company that sells kefir, saw its stock jump nearly 9%, and Snyder's-Lance Inc., which owns nuts, had a more than a 3% bump in its shares.

Analysts and bankers say that small food companies can offer higher returns for investors in a time of sluggish growth in the broader U.S. economy.

Sales of natural and organic products can grow at annual pace in the high-single or low-double digits, said Sean Naughton, senior research analyst for Piper Jaffray Cos. Inc.

"It is economics -- the bigger the ship the harder it gets to turn," said Jeff Tarplin, managing partner at India Brook Partners, an investment banking firm that specializes in food industry mergers and acquisitions.

The growing appetite for healthier and more natural food has also hurt companies that sell sweets, and has sent some companies in search of deals that help them reduce overall costs.

Last week, snack-maker Mondelez International Inc. made a $23 billion bid --quickly rebuffed --for chocolate company Hershey Co. in a combination that would create the world's largest candy maker.

The consolidation of smaller brands into food behemoths can come at a cost. Under the leadership of the 110-year old behemoth Kellogg Co., cereal-maker Kashi saw sales fell 17% below their peak to $500 million in 2014. Kellogg imposed elements of its corporate structure on the company and the changes ended up turning off employees and consumers.

Some companies like Clif Bar & Co. and Kind LLC have resisted bids by larger food companies.

WhiteWave has flourished in the three years since striking out on its own after then-parent Dean Foods spun off the faster-growing soymilk maker from its stagnant commodity dairy business. Dean Foods continues to struggle with a decades-long decline in milk drinking in the U.S., while WhiteWave sales have ballooned thanks in part the purchase of nutrition food company Vega and Wallaby Yogurt Co. in 2015. But annual organic sales -- stripping the impact of acquisitions -- have also grown in the double-digits on average, according to the company.

Some wonder if Thursday's deal could stymie that growth. "At some point it's going to become very difficult to make an acquisition just to show growth" in sales, said Chris Geier, head of investment banking at Chicago-based accounting and advisory firm Sikich LLP.

--Annie Gasparro contributed to this article

(END) Dow Jones Newswires

July 08, 2016 11:25 ET (15:25 GMT)

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