Mumbai: Kraft Foods, the world''s biggest cookie maker, has offered to acquire Danone''s biscuit and cereals division for €5.3 billion ($7.20 billion / Rs21,544.5 crore) in cash, the food groups said.

Kraft''s acquisition of Danone''s cookie unit, which includes the LU, Prince and Tuc brands, will give the US food giant a stronger foothold in Europe and in emerging markets and allow Danone to focus on further boosting the health range in its fast-growing fresh dairy and drinks business.

The offer exceeds the €3.5-€4 billion reported earlier by the media and is more than double the €2.2 billion in sales the unit made last year. Danone''s stakes in its Indian and Latin American businesses are not part of the deal.

Danone and Kraft, maker of Oreo and Chips Ahoy! cookies as well Philadelphia cheese and Milka chocolate, expect to reach a final agreement by the last quarter of 2007.

Under the preliminary deal, Kraft will not close any of Danone''s biscuit manufacturing facilities in France for at least three years after the transaction is signed and said the European biscuit headquarters would stay in the Paris region for the foreseeable future.

"This proposed acquisition makes great sense for Kraft," said Irene Rosenfeld, Kraft chairman and chief executive officer.

The move will consolidate Kraft''s number one position as the world''s top biscuit maker from the number two spot that it currently holds.

"This growing, high-margin business will give Kraft another core growth category in Europe, a cornerstone for faster growth in emerging markets, and the best portfolio of iconic biscuit brands in the world," Rosenfeld said.

With the acquisition, Kraft will gain access to key emerging markets like China, Russia, Poland, Indonesia and Malaysia, which will account for 25 per cent of business, and the company also will establish footholds in Malaysia and Indonesia, she added.

Georges Casala, who currently runs Danone''s biscuit business, will manage the company''s entire EU biscuit business, including Kraft''s recently acquired Iberian biscuit brands and operations.

Danone has already been the focus of French nationalistic concern, especially after whispers that American company PepsiCo planned to buy it in 2005.

The rumour prompted the French government to launch a campaign protecting 20 designated French companies, including Danone, which they termed a ''national champion.''

Protectionist-minded ministers feared loss of French jobs to what they viewed as a ''hostile takeover'', and an attack on their national identity.

Reports, meanwhile, said that Danone has already closed two factories in France, and three others in Europe, since 2001.

Kraft to fuel growth for Danone''s biscuits, cereals
Kraft had worldwide biscuit sales of $5 billion in 2006, while Danone''s biscuits and cereal products business is the smallest and slowest-growing of its three arms, according to company figures. It had a turnover of €2.2 billion in 2006, and experienced 3 per cent growth.

The dairy and beverage divisions on the other hand have seen 10 and 11 per cent growth respectively, reports said.

Reports also said that there is speculation about Danone''s own acquisition plans, and that it may target Wimm-Bill-Dann, the Russian dairy and juice group, and Numico, the Dutch baby food and nutrition company.

While the biscuits business sale could fetch €3.5 billion, Danone could sell Numico''s clinical nutrition business to partly fund the deal, leaving it with the baby-foods business, the report said.

Kraft''s Rosenfeld expects the takeover of Danone''s biscuit and cereal division to add to its earnings from the first year.

It will double the US food giant''s size in China, give it a foothold in Malaysia and Indonesia, and Eastern Europe, mainly Russia. Biscuits represented $5 billion and the European Union $6.7 billion out of group sales of $34.4 billion last year.

Rosenfeld said Kraft could afford Danone biscuits without selling assets. "We have a very strong balance sheet," she said, adding the deal would be paid for in debt. Still, Kraft would keep reviewing its portfolio and could in time decide to sell businesses that fail to meet its longer-term growth targets.

The biscuit unit is Danone''s least buoyant and represented about 16 per cent of group sales last year. The LU brand accounts for nearly half of the biscuit and cereal division''s sales. The unit''s like-for-like sales rose 3.1 per cent last year while dairy and beverage rose 9.2 and 14.8 per cent.