* Buying Petra Foods cocoa unit for $950 mln
* May have to raise $300 mln in new equity
* Acquisition price too high - analyst
* Shares down 1.9 pct, underperform peers
(Repeats to additional subscribers)
By Caroline Copley
ZURICH, Dec 12 Swiss chocolate maker Barry
Callebaut is buying the cocoa business of Singaporean
group Petra Foods to reduce its dependence on West
African beans as it expands in emerging markets.
Barry Callebaut was already the world's biggest maker of
finished chocolate products for clients such as Nestle
and Hershey, and the $950 million cash deal - its
largest yet - will make it the biggest processor of cocoa, too.
The Petra Foods cocoa operation, which makes cocoa liquor,
butter and powder, produced revenue of $1.3 billion in 2011. It
manufactures and sells cocoa ingredients under the Delfi brand
to more than 30 countries and customers including Nestle,
Cadbury and the Mars Group.
Barry Callebaut, which provides the food industry with cocoa
and chocolate products, coatings and cocoa powders, said the
deal is expected to close mid-2013 and will boost sales volume
in fast-growing Asia and Latin America to 31 percent of total
sales volume from 24 percent now.
It will also add a second strong base for cocoa sourcing and
processing in Asia. The supply of cocoa from Indonesia helps to
reduce reliance on West Africa, which accounts for 70 percent of
global cocoa supply but has suffered from volatility because of
conflict in top producer Ivory Coast.
Barry Callebaut said the deal valued Petra at 14.3 times
2011 enterprise value/earnings before interest, tax,
depreciation and amortisation. That's more than double the
average for the consumer goods and services sector of 6.7 times,
according to Thomson Reuters data.
Analysts said that Barry Callebaut had paid a high price for
a not particularly profitable business.
"Barry Callebaut is securing a number one position in the
fast-growing emerging markets, however at a high price. Key
challenge will be to restore Petra's profitability," said
Vontobel analyst Jean-Philippe Bertschy.
The Petra division reported nine-month revenue fell 20
percent to $778 million, saying the global cocoa ingredients
industry was struggling with pressure on margins due to excess
supply at a time of weaker chocolate consumption.
Led by businessman John Chuang, Petra said last month it
expected chocolate consumption - once thought as recession proof
- to stay weak in developed markets but keep growing strongly in
Barry Callebaut said that emerging markets were driving
annual growth of 2-5 percent in the cocoa powder market because
of rising demand for a range of chocolate-flavoured products,
including drinks, fillings, pastries and ice cream.
"I would agree it's a full price, but I would also agree its
worth it," Chief Executive Juergen Steinemann said. "You are
buying here market potential ... you are buying a future motor
Shares in Barry Callebaut were down 1.9 percent at 924 Swiss
francs by 1425 GMT, against a 0.3 percent fall for the European
Food and Beverage index. Petra's shares surged as much
as 24 percent to a record S$3.40 ($2.78).
Barry Callebaut said the deal would be financed by a
bridging loan to be replaced after a year by a debt issuance and
$300 million of new equity.
Chief Financial Officer Victor Balli said the deal would
initially lower profitability but would boost earnings per
shares from the second year. He said that it plans to return
group operating profit per tonne to its pre-acquisition level by
Integrating the Petra Foods unit into Barry Callebaut will
result in estimated one-off costs of 10-15 million Swiss francs
($11-16 million) in the first two years, the company said, with
an additional one-off transaction cost of 10 million francs.
The proposed deal includes Petra's entire cocoa ingredients
business, including seven factories in Malaysia, Indonesia,
Thailand, Brazil, Mexico, Germany and France, plus sales offices
in Singapore, the Netherlands and the United States.
The business being sold is the largest cocoa products
supplier in Asia and accounts for 75 percent of Petra's group
revenue, with the rest coming from its branded consumer unit.
The consumer division makes more than 400 products,
including the SilverQueen and Ceres brands popular in Indonesia
and the Philippines and will now source three quarters of its
cocoa from Barry Callebaut as part of the deal.
A more concentrated focus on consumer brands will be good
for Petra Foods, said Goh Han Peng, an analyst at DMG & Partners
Swiss investment bank Credit Suisse advised Barry Callebaut
on the transaction.
($1 = 0.9325 Swiss francs = 1.2213 Singapore dollars)
(Additional reporting by Eveline Danubrata; Editing by Emma
Thomasson and Erica Billingham)