Too long in the oven

Now that Danone has exited biscuits globally, the Wadias need to sort out their differences with the French firm and focus on the business.

When US foods giant Kraft Foods made an offer to French dairy major Groupe Danone to buy out its biscuits portfolio in 20 countries, earlier this month, India was not part of the deal.

That's not because Danone doesn't want to sell out in India-- it does. But the first right of refusal for Danone's 25.5 per cent in the Rs 2,199 crore Britannia Industries, reportedly lies with the firm's joint promoters, the Wadia group. And the Wadias appear to be in no hurry to buy.

Given that the two have been sparring for a long time on various issues, neither will mind parting ways. Howeve, now that Danone has sold out to Kraft internationally, it needs to cash out of India quickly.

"The longer Danone holds on to its Britannia stake, the worse it will be for them because the value will get eroded," says Sanjeev Krishan, executive director, Pricewaterhouse Coopers.

Adds another consultant, " The Wadias can now afford to play the waiting game and can buy out their foreign partners on their own terms."

While that may be true, Danone's exit from Britannia will hurt the Wadias because they will miss the French major's product portfolio.

As Krishan points out, acquiring or building big brands will be a key challenge area for them. There is also the possibility that either Kraft or any other international foods major will look to entering India with a local player.

And that can only mean more competition for Britannia. Already, the firm has been losing share to competitors and its profits fell 26 per cent in FY07, though it reported a sales growth of 28 per cent.

There is of course, nothing to prevent the Wadias from roping in a new partner once Danone has exited. But if they make space for a third party to buy Danone's stake, they could theoretically face the prospect of becoming the smaller shareholder, since it might trigger an open offer by the new entrant.

The Wadias might instead prefer to shore up their holding in the firm (by buying Danone's stake) though it is going to be an expensive proposition with the stock price of Rs 1,712 translating into a market capitalisation, for the firm, of Rs 4,092 crore.

But that is probably the best way out. If they are to consolidate their position in the biscuits market where they already have about a third in volume terms and close to 40 per cent in value terms, they need to get a move on.

Danone and Britanniahave been sparring over several issues. The first is over the use of Britannia's Tiger brand by Danone where the Wadias reportedly claim that Danone has been using the Tiger brand in some overseas markets without the consent of the Britannia board.

It's not clear what Danone's stand on the issue is. The two do not see eye to eye on Danone's investment in the Bangalore-based bio-nutrition company Avesthagen with the Wadias reportedly claiming that there is an overlap between the products of that company and what Britannia makes in its joint venture with New Zealand Foods.

In fact, last December the Wadias filed a case in the Mumbai High Court claiming that Danone should have not made this investment without their consent.

As if this were not enough, the Wadias and Danone are also locked in a dispute over their second venture Wadia BSN. This is an eleven year old company in which Danone and the Wadias have equal stakes and which was supposed to make an entry into the food and dairy segments. The Wadias are reportedly miffed that not a single product has been launched in all this time.

The two parties met in London in February this year but couldn't hammer out a solution.

In late June, Danone initiated arbitration proceedings against the Wadias ostensibly wanting to trigger the 'deadlock' clause in their agreement which would allow it to buy them out.

The good news, however, is that the Avesthagen issue may be resolved out of court. That would be a step forward.And if the two can find a way out of the impasse when they meet next month that would be even better. It's crunch time at Britannia.