You really have to wonder what Group Danone (OTC BB: GDNNY.PK) is up to with its purchase of Dutch baby-food and nutritional food maker Numico.
Numico is a healthy, growing business generating consistent cash flows and has done well since restructuring itself a few years ago. It would greatly improve Danone's position in nutritional foods, where Nestle, Bristol-Myers Squibb
Still, we're talking about a 45 multiple to free cash flow and in the neighborhood of 18 times EBITDA (earnings before interest, taxes, depreciation, and amortization) for a boost in a market with plenty of healthy competitors. It's tough to justify such multiples without a competitive advantage that provides plenty of long-term growth, and it doesn't appear there is one here.
One interesting idea I've seen floating around in The Wall Street Journal and elsewhere is that Danone is simply looking to get larger to remain independent. PepsiCo