The decision by the world's biggest yogurt maker, French company Danone (DANOY), to buy Action Alerts PLUS WhiteWave Foods (WWAV) is so much more than a simple merger announcement. Its symbolic value as a beacon of hope becomes clear if we look at the markets' reaction.
Normally, when a merger is announced, the shares of the buying company fall, as investors try to adjust the price to the expense of the acquisition. But this time, Danone's shares jumped 7% in morning trading in Paris after the acquisition was announced. It was the best performer in the CAC-40 index, itself up by 1.6% in morning trade.
In a statement, Danone said the acquisition will pay WWAV shareholders $56.25 per share in cash -- an 18.6% premium over Wednesday's closing price of $47.43 and around 24% over the average 30-day closing price.
The price values WhiteWave Foods at approximately $12.5 billion in total, including debt and certain other WhiteWave liabilities, the statement said. The pure equity value is $10.4 billion. The deal doubles the size of the French company's business in the U.S.
But perhaps the most encouraging bit is this sentence towards the end of the statement: "The acquisition of WhiteWave is expected to be fully financed with debt for which Danone has received commitments from its banks."
Moreover, Danone expects to maintain its "strong investment grade profile." The company is rated Baa1 by Moody's and A- by Standard & Poor's.
This shows that despite the recent shock of the U.K.'s vote to leave the European Union and the ensuing upheaval in markets -- things like the six property funds that have halted investor withdrawals in the U.K. or the fall to new record lows of the Deutsche Bank (DB) shares -- banks are still willing to extend credit for investments they see as profitable.
It also proves that the European Central Bank's (ECB) corporate bond buying program, which started last month, is beginning to bear fruit. Back in the spring, when the program was first announced, I wrote that eurozone companies would use it either to expand or to buy back shares and distribute dividends. Both avenues were bullish for eurozone stocks then and still are now.
Even companies whose bonds are not being bought by the central bank are set to benefit, because interest rates remain at record lows and yields are turning negative for the safest debt, which means even firms outside the program can issue cheaper debt.
Besides the corporate bond purchases, the ECB is also offering ultra-cheap loans -- even in certain conditions at negative interest rates -- targeted at banks willing and able to boost lending to the real economy in the eurozone. The euro fell vs. the dollar after the U.K.'s Brexit vote, adding even more monetary easing for companies in the single currency area.
The acquisition of WhiteWave by France's Danone proves that, far from being down and out because of the Brexit vote, corporate Europe is still in fighting shape. It is time for investors to look again at the French shopping list they prepared immediately after the vote.
