Blog: Cloetta, Leaf mark latest stage in candy consolidation
Dean Best | 16 December 2011
This time two years ago, the story in the industry was Kraft Foods' pursuit of Cadbury. We all know how that ended. Many industry watchers argued that deal would spark further consolidation in the confectionery sector but, since then, there has been an absence of major deals - until today (16 December).
Swedish confectioners Cloetta and Leaf International this morning announced plans to merge to create a business with sales of SEK5.7bn (or around US$821m) and "recurring EBITA" of SEK666m.
The combined company will keep the Cloetta name and, although announced as a merger, a senior Leaf official today described the deal on Twitter as a "reverse takeover" by his company.
Leaf's shareholders, private-equity firms CVC and Nordic Capital, will hold over 57% of the combined business, with Cloetta investors taking the rest.
We won't know for certain if the deal will go through until February when Cloetta investors meet to vote on the transaction but already the companies have outlined the "synergies" they hope to extract from the merger.
In a joint statement, the companies said there was "significant synergy potential" of over SEK65m a year that could be achieved within two years of the deal closing. Leaf is also in the process of restructuring its supply chain, which it hopes will yield SEK45m more cost savings a year.
Staff at both companies will be weighing up how the deal will affect them. Leaf is the more international of the two firms, with offices and factories across Europe, including in the UK.
Executives also emphasised other benefits of the deal. "This transaction makes both industrial and strategic sense," Leaf CEO Bengt Baron said, referring to the brands that the combined company will own, including Kexchoklad in Scandinavia, Sperlari in Italy and Chewits in the UK.
However, scale will be a key consideration in a food sector that is consolidating faster than others. The new company's greater scale will also help it absorb ever-more volatile commodity costs, particularly in sugar and cocoa, and also give it greater bargaining power when dealing with powerful retail customers on the continent.
The new Cloetta may not be as big as some of its rivals (or as the Godzilla-type monster of Chewits adverts of yesteryear) but it looks set to be a stronger force in a confectionery industry which, if not as fast as some had predicted, continues to consolidate.
The BBC turned to just-food today for insight on the price dispute between Tesco and Unilever....
Just weeks after buying UK turkey processor Bernard Matthews from administration, food tycoon Ranjit Boparan has struck a similar deal....
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