Good records smooth deals
by Michael Bradford

It is one thing to sell a business unit and make sure the insurance liabilities go with it. It is another job altogether to do it while simultaneously acquiring a new operation and making sure it, too, is properly protected.

That was the task Thierry van Santen and his insurance manager faced last year when Groupe DANONE decided to sell its biscuit business to Kraft Foods Inc. and, at the same time, acquire Koninklijke Numico N.V., an Amsterdam, Netherlands-based medical nutrition and baby food company.

"This was done in roughly two months in [the fall of] 2007," said Mr. Van Santen, who is executive vice president of the business risk management department at Paris-based DANONE. "It was quite challenging."

The two companies looked similar on paper: DANONE's biscuit business was an operation with annual sales of €2 billion and 20 factories in 20 countries. Altogether, there were around 100 companies in the biscuit division. The Numico acquisition represented about €2.6 billion in sales, also from around 100 companies. Numico operated 25 factories.

"With the biscuit business, the issue was to work closely with the new owner," said Mr. Van Santen. "Our policy is not to keep the risk when we have sold a business, so we wanted to be sure from day one that they had their own insurance program in place."

That meant helping Kraft collect piles of data related to the biscuit operations and the risks they faced, Mr. Van Santen explained. DANONE's risk management information system helped in that task, he said.

"We had most of the information online," Mr. Van Santen said, which made the transition of the business to Kraft easier than it might otherwise have been. "They congratulated us on how that process went," he said of the buyer.

The simultaneous integration of the Numico operations proved more difficult because it operated under different insurance and risk management philosophies and rules, said Mr. Van Santen.

Carine Hebay-Bony, corporate insurance manager at DANONE, agreed that the Numico transition was not the easiest of integrations. "It has been a process to educate them," she said of the acquired company, and that work continues in some areas. "It has been difficult to explain the differences in their products and ours, so we are still working on that."

DANONE was able to structure insurance coverage for 80% of the Numico business that was effective from the date of the acquisition late last year, said Mr. Van Santen. By July, all of the Numico coverage had been integrated into DANONE's program, he said.

With the insurance transition nearly completed, the task turned to making sure risks associated with the former Numico operations are managed the DANONE way, he said.

"Our system is based on the philosophy that you need to manage your risk. Improve your risk, and you will get a reward on your insurance costs," said Mr. Van Santen. "The system at Numico was based more on premium allocations decided by the head office."

"Now that the insurance side is under control," Mr. Van Santen said, "I have to refocus on enterprise risk management."