Sigma Alimentos, the food arm of Mexican conglomerate Alfa, has launched a bid to acquire Spanish meat processor Campofrio. While Mexico’s largest meat processor has been active in M&A in Latin America and the US in recent years, the move would mark the group’s first foray into Europe. Katy Askew reports.
Dairy-to-meats group Sigma has launched a takeover bid for Spanish meat processor Campofrio, offering EUR6.80 (US$9.16) per Campofrio share. The bid values Campofrio at EUR1.12bn, or 7.5x EBITDA, including debt, Alfa said yesterday (14 November).
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Sigma is one of the largest meat and refrigerated food groups in Central and North America. It is the largest manufacturer of hot dogs in the US, where it generates about a quarter of revenue, and the biggest cheese maker in Mexico. Sigma’s domestic market accounts for 68% of total sales.
As it looks to extend its market position, Sigma has been on something of an acquisition spree in the region. This year alone, the firm entered into agreements that saw it purchase Costa Rican cheese maker Monteverde and red meat firm Comercial Norteamericana.
However, yesterday’s announcement would mark the group’s first entry into Europe and can be taken as a signal Sigma wants to progress from the regional to the global stage.
“The acquisition of Campofrio is consistent with Sigma’s long-term growth strategy and gives it the opportunity to expand its current market coverage in the Americas, to become a global leading refrigerated foods player,” Alvaro Fernandez, Alfa’s president, confirmed.
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By GlobalDataIf the acquisition attempt is successful, Sigma will be returning to the Old World in a big way.
“The main attraction for Sigma is that this acquisition would not only provide a solid step into the European market, but would do so as one of the top players in such market,” Grupo Financiero Banorte analyst Carlos Hermosillo tells just-food.
Campofrio is one of Europe’s largest meat processors. Its products range from traditional Spanish cured meats to hams and hot dogs. The company also boasts a stable of well-known brands, including Campofrio, Aoste and Caroli.
In 2012, Campofrio generated sales of EUR1.92bn. The addition of Campofrio sales would significantly beef up Sigma’s revenue stream. According to the annual report from Sigma’s parent, Alfa, the Mexican firm booked 12-month sales of US$3.44bn. At today’s exchange rates, an acquisition of 100% of Campofrio would therefore raise Sigma’s top line by just over 75%.
Mario Páez, Sigma’s CEO, suggested the acquisition would allow Sigma to advance its strategic plan. The company has previously announced that it intends to “maximise and expand its core businesses” and “strengthen its leadership position”. It is also focused on “venturing into new areas of the food industry and new geographies wherever it finds them attractive.”
Páez added that, through the Campofrio acquisition, Sigma would look to capture opportunities in the value chain, lowering its cost base by “leveraging economies of scale”.
However, according to Banorte analyst Hermosillo, potential synergies flowing from the deal will likely be of a limited nature. “Regarding synergies and other integration benefits I don’t think we should expect much, given Sigma’s current geographical footprint. At most we could expect sharing of know how in some very specific products that are traditional to the European culture and not yet prevalent in Sigma’s markets in North America,” he says.
Nevertheless, Páez insisted Sigma would benefit from cross-selling opportunities and plans to introduce “both companies products across each others’ geographies”.
Significantly, he revealed the group hopes to capitalise on the “expected improvement in the macroeconomic environment in Europe in the medium term.”
Indeed, earlier this week, Campofrio confirmed it expected to benefit from improving consumer sentiment when it delivered its results for the first nine-months of the year. The group revealed that its earnings decline had gradually slowed as 2013 progressed.
In a presentation to the market, Campofrio emphasised that, according to BBVA Economic Watch Europe, consumer confidence has shown a “clear upward trend” based on higher confidence in Germany, France and Spain. While many European economies have remained “sluggish” second-quarter GDP was up 0.3% quarter-on-quarter, after six quarters of recession.
“The recovery in domestic demand and private consumption is forecasted for 2014 in the large European countries except for Spain,” Campofrio revealed.
Nevertheless, it is clear the European packaged meat market remains extremely challenging, with pressure on consumption, increasing promotional activity and private label growth. Campofrio has looked to meet these challenges by focusing on its growth segments – health, heritage and snacking.
Clearly, Sigma is convinced by Campofrio’s long-term proposition.
The company has already inked purchase agreements with shareholders representing 45.8% of Campofrio’s outstanding share capital.
Sigma has struck deals with Oaktree Capital, which controls 27.9% and Caixa, which holds 4.2%. The group has also received the backing of current chairman Pedro Ballvé, who will offer the 12% stake held by the Ballvé family following an agreement that will then see him become a co-investor and continue in his post as chairman for a further five years.
Will this be enough to seal the deal?
Much will depend on the reaction of China’s Shuanghui International, who holds a 37% stake in the group after its acquisition of Smithfield Foods earlier this year.
Speculation Shuanghui will hold out for a higher price – or indeed launch a counter bid – forced Campofrio shares up to EUR7.05 at 14.53 today.
However, Kepler Cheuvreux analyst Javier Campos downplayed either possibility.
In an alternate scenario, reports have also suggested Shuanghui could stay on-board as a co-investor, giving the enlarged group access to markets across Europe, the Americas and Asia.
“What is not clear is whether the Chinese would like to retain the 30% stake without being the controlling shareholder while we see unlikely that Chinese will launch a counter bid,” Campos wrote in a note to investors.
“In fact, the Chinese group announced its intention to reduce the stake in Campofrio below the 30% threshold (before December 2013) to avoid launching a full bid on the Spanish group. After yesterday share price reaction, we would sell.”
