Danone Abruptly Withdraws Bid for Quaker Oats

PARIS —  French food group Danone abruptly pulled out of the bidding for Quaker Oats on Thursday, leaving the U.S. cereals group without a suitor.

News that Danone had given up interest came just 24 hours after it announced it wanted to buy Quaker, maker of the best-selling Gatorade sports drink and Quaker oatmeal.

That made Danone the third suitor to flirt with Quaker over the last month, and the third to walk away without a match.

The world’s two biggest soft drink companies, Coca-Cola Co. and PepsiCo Inc., both failed to seal a deal--Coca-Cola’s board got cold feet and Pepsi’s bid was rejected, reportedly for being pitched too low.

Coca-Cola was reported to have bid $113 per share, valuing Quaker at $15.75 billion, while Quaker was said to have rejected a Pepsi offer of $103 that valued the company at $13.7 billion.

Chicago-based Quaker, which has cut costs and streamlined operations in what has been seen as the run-up to a sale, is not considered desperate for a deal.

But its lucrative Gatorade business has tempted three multinational heavyweights, and analysts did not exclude the possibility of a fresh--if lower--Pepsi bid.

“It leaves Quaker still in a good position,” said Warren Ackerman, sector analyst at Dresdner Kleinwort Benson.

“They have been quite clever getting the big players round the table and they realize they are pushing at the top end of the pricing level. . . . Pepsi is now a clear favorite and the feeling is Pepsi may now walk away with it,” Ackerman said.

Pepsi may come back with a lower offer and Quaker, lacking other options, may have to accept, he added.

“You have to wonder whether this leaves Pepsi in a position of strength, or maybe nobody will come back and that will put Quaker under significant pressure,” another analyst said.

That is, unless Swiss food group Nestle comes in with a wild-card offer.

Though Nestle declined to comment after the news of Danone’s withdrawal, industry sources and analysts said the Swiss giant, if loath to cross its joint-venture partner, General Mills Inc., by making a direct offer, might prefer to snap up any spin-off interests if Quaker is broken up.

In New York, Pepsi declined to comment and Quaker could not immediately be reached.

Danone, the French water, yogurt and biscuit maker, said it would continue to develop its existing lines of business after renouncing a deal it said had “strategic and operational logic.”

“Danone Group has decided that the financial terms of such a possible acquisition would not be in the best interests of its shareholders, nor consistent with its stated strategy of creating shareholder value,” it said in a brief statement.

Investors, fearing that Danone would dilute earnings by paying too much for a company two-thirds its size, welcomed news it had withdrawn. Its shares rallied 6.25% to close at 153.1 euros, recovering much of Wednesday’s 10% plunge.

“The market was clearly concerned they were going to overpay for any deal,” said Michael Barakos, a buy-side analyst at Chase Fleming Asset Management.

“The issue is really one of valuation.”

The U.S. market was closed for the Thanksgiving holiday.

Danone’s failure to pursue Quaker raises questions about whether it can avoid becoming a takeover target itself.

“The fact they approached Quaker over doing a potentially value-destroying deal shows they may be concerned about the long-term sustainability of their stand-alone strategy,” Barakos said.