Just before the UK stock market closed last Friday, UK confectioner and snack firm Zetar made the surprise announcement that its board had accepted a takeover bid from the almost identically-named Zertus, a privately-owned German food group.
Zetar makes private-label confectionery and snacks for retailers in the UK and, more recently, in France. It also sells licensed products under brands including Tango and Guinness and Premier Foods plc’s Branston.
The AIM-listed company reported a drop in annual profits in July but it remained bullish on its prospects. Speaking to just-food after the results were published, Zetar CEO Ian Blackburn said he saw the company’s sales increasing by a not insignificant 20% in the next three years on the back of NPD at home and expansion in Europe.
With Zetar confident, agreeing to a sale was, to some, a surprise. In the document outlining Zertus’s offer, Zetar said its board believed it had a “solid platform for an organic growth as an independent business.” However, it added: “There is a recognition that the current economic outlook is uncertain and that consumer spending remains under pressure.”
Did the UK firm therefore believe it would find it tough to fulfil its growth ambitions? Zetar chairman David Williams insists the company is “very confident” about its prospects and said legally the firm had to provide reasons why it was considering the deal.
“When you are doing one of these deals, you have to give reasons why you are considering the deal. Obviously, while we are very confident, it is true the economic conditions are such that you can never be certain. But we are very confident about how the business is going. We have to make that comment as you would say perhaps when you cross the road, you have to be careful to look left and right,” he tells just-food this week.
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So why accept Zertus’s offer? The German company is paying 297p per Zetar share, which equated to a 23.6% premium on the snack group’s closing share price last Thursday, the last full day of trading before the announcement. It values Zetar at GBP43m.
“Along with hundreds of other smal companies, our stock has been lowly-rated in the last couple of years, this was an attractive offer in relation to the share price at the time,” Williams says.
However, tellingly, he says Zetar’s board had become frustrated at the company’s inability to raise funds for expansion or make an acquisition that would help meet its ambitions. Becoming part of Zertus, Williams argues, would help Zetar expand in Europe.
“As a board we were getting a bit frustrated not being able to do that. With the share price being so low, it’s been hard to justify issuing paper at these levels and finding a suitable acquisition at an earnings-enhancing level,” he says. “You could pick a hundred small companies on AIM and they would say the same thing. When the market was doing well and money was plentiful, it was much easier to do the deals. Now it’s come to a grinding halt, it’s very hard to get that support to allow you to do those things. But it’s where we are and that’s why we’re seeing so many takeovers because obviously people with cash are in a very strong position to pounce on people in this position.”
Nevertheless, Williams adds: “This is a way of achieving that European expansion. The German company does have quite a lot of cash spare and they are very happy to invest. It’s an attractive deal for both parties. It is a good deal for both parties.”
Zertus refused to comment when contacted by just-food. The move for Zetar marks its entry into the UK and, in the document announcing its offer, hinted at its reason for bidding for the company.
“The directors of Zertus view Zetar as a particularly well managed confectionery and snacks business with leading market positions in the UK and Ireland. We are impressed by Zetar’s proven track record for innovation and brand building and are excited about the prospect of jointly expanding our enlarged portfolio of products to new markets,” Zertus director Jörn Riemer said.
Zertus already has interests in the confectionery sector in mainland Europe. It says its Kalfany unit is the “largest manufacturer of tinned candies” in Europe. A second subsidiary, Süße Werbung, makes “personalised confectionery”, Zertus’s website says. On the face of it, Zertus has the presence on the Continent to grow Zetar’s business outside the UK.
Zetar CEO Blackburn and MD Clive Beecham will be invited to join the board of Zertus UK, a newly-formed subsidiary, a sign the German firm recognises the know-how the two men have of the confectionery and snacks sectors.
Both parties believe the deal will be finalised by the end of November. Zetar investors representing over 42% of the company’s shares have already said they would support the offer.
Zetar looks set, then, to start 2013 under German ownership but with renewed hopes it can meet its European ambitions.