Some of France's best-known consumer brands are poised to come under US ownership after Kraft confirmed it had provisionally agreed to buy the biscuit arm of Danone for €5.3bn ($7.2bn).
The deal, whose finalisation is subject to employee consultation and regulatory approval, will give Kraft control of the LU and Prince biscuit brands, familiar to generations of French people.
But while France remains the biggest market for Danone's biscuits, Kraft is also buying its operations in 19 other countries, including Belgium, Russia, Poland and China.
The deal thus represents a massive internationalisation of Kraft's own biscuit business, which makes Oreo cookies and Ritz crackers.
Kraft had already given a hint of its overseas expansion plans when it bought the Spanish and Portuguese operations of United Biscuits last year. It sought to allay French fears about job security on Tuesday by announcing that it had agreed not to close any biscuit factories in France for at least three years. Existing management will also be retained.
Meanwhile, Kraft has pledged to keep the European headquarters of its enlarged biscuit business in the Paris region for at least 2 years, emphasising that it had no plans to move for the "foreseeable future". Kraft's overall European business is based in Zurich, Switzerland.
The US group's strategy has come under the spotlight since it emerged last month that Nelson Peltz, the activist US investor, had taken a 3 per cent stake. In an interview with the FT, Irene Rosenfeld, Kraft chief executive, declined to say whether she had since met with Mr Peltz.
However, she said talks with Danone had been going on for several months, well before he emerged on the scene. "A transaction of this size does not happen overnight," she said. Kraft said the combined biscuits business would be the leader in all markets bar Latin America, accounting for 35 per cent of group sales.
The deal does not include Danone's joint ventures in Latin America and India. The latter forms part of a dispute between Danone and its Indian partner, the Wadia family. Lazard and JPMorgan advised Danone. Goldman Sachs advised Kraft.
Kraft shares fell 2.3 per cent to $34.70 in the wake of the announcement. Ms Rosenfeld told analysts that the acquisition price – 13.2 times 2007 ebitda – was just below recent comparable deals in the sector. She declined to comment on market talk that suggested Kraft could one day be a suitor for the Cadbury Schweppes confectionery business.
Danone shares rose 1.25 per cent to €61.71 on Tuesday. It has been seen as a potential takeover target in the past. Andrew Wood of Sanford C Bernstein said the biscuits disposal would make a Kraft bid for the whole of Danone "much less likely".
Franck Riboud, Danone chairman and chief executive, declined to comment on what Danone would do with the disposal proceeds, amid speculation that Holland's Numico and Russia's Wimm-Bill-Dann could be bid targets for the group.