French foods major Groupe Danone said yesterday that it will merge its Fresh Dairy Product businesses in the CIS area with Russian company Unimilk into a new entity that will generate annual sales of approximately €1.5 billion.

Paris-based Danone will hold 57.5-per cent stake, while Unimilk, Russia's second largest milk processor will hold a 42.5-per cent in the new entity that will have over 18,000 employees and become the leader in dairy products in the CIS area and particularly in Russia, where it will account for around 21 per cent of the market share.

With operations spanning Russia, Ukraine, Kazakhstan and Belarus, the merger will complement Danone operations mainly in western Russia with Unimilk's higher profile in the country's eastern markets.

Although the French yogurt and bottled water producer did not disclose the financial terms of the deal, it did say that its net debt would grow by €1.3 billion ($1.6 billion) as a result of the transaction.

Moscow-based Unimilk, a privately owned company with 2009 sales of €1 billion, is Russia's second largest manufacturer of dairy products and baby food. Founded in 2002, it has 28 production plants in Russia, Ukraine and Belarus and 14,000 employees.

The company also sells its products in Kazakhstan. Unimilk owns the leading dairy brand in CIS ''Prostokvashino'' and has a strong brand portfolio in all market segments.

Danone, a Fortune 500 company with 2009 revenues of  14.98 billion, is one of the world's most successful health food companies.

Danone, with 160 plants and around 80,000 employees, has a presence in all five continents and over 120 countries. It is No 1 in fresh dairy products and No 2 in packaged water, baby nutrition and medical nutrition.

"Almost 20 years after taking our first steps in Russia, Danone-Unimilk represents a strategic move for Danone in a region which is offering a promise of growth in the years ahead, and where we will be pursuing ambitious goals for the future,'' said Danone chairman and CEO Franck Riboud.

''Our alliance with a highly respected food-industry leader that has been remarkably well managed from its beginnings will make for added pace..…..it is also an important new step in Danone's drive to extend business into new geographical markets," he added.

Unimilk CEO Andrey Beskhmelnitsky said, ''Since its very beginning Unimilk was established as a company open for partnership, ready for implementation of any bold ideas and projects aimed at our consumers' satisfaction. Our alliance with Danone, the world leader in fresh dairy products, will increase investment potential of the whole industry, set new standards of efficiency, increase demand for high quality raw milk, and will obviously promote consumer market and the development of our teams.''