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UPDATE 3-CSM looks to sell struggling bakery supplies arm
May 7, 2012 / 6:25 AM / 5 years ago

UPDATE 3-CSM looks to sell struggling bakery supplies arm

* To focus on smaller “bio-ingredients” divisions

* Disposals could raise up to 1.3 bln euros - analysts

* Shares rise 18 pct

By Sara Webb and Ivana Sekularac

AMSTERDAM, May 7 (Reuters) - Dutch foods ingredients group CSM has put its main bakery supplies business up for sale, blaming weak consumer spending and high raw material prices, and said it would focus in future on more profitable natural products.

Shares in the world’s largest bakery products maker leapt as much as 30 percent on Monday as analysts said the sale could raise as much as 1.3 billion euros ($1.7 billion) to pay down debt and return to shareholders.

“The divestment is a major announcement for CSM, one that was eventually expected, but clearly not this quickly,” SNS Securities said in a research note.

CSM, which has been under pressure to reshape its business in order to revive its flagging share price, said in February it planned to restructure or divest as much as 30 percent of its European bakery supplies division this year.

But the continued weak state of the market forced CSM to take much more drastic action and on Monday it said it did not have the financial resources to keep all of its businesses.

Analysts said that given the difficult economic conditions in Europe and the United States, and fragile consumer confidence, there was limited scope for growth in the sector except through acquisitions.

That should mean there is “appetite in the industry” to buy CSM’s assets, Robert-Jan Vos, analyst at ABN AMRO, said.

Analysts said potential buyers included Mexico’s Grupo Bimbo , the world’s largest breadmaker, Swiss-based specialty baker Aryzta and Belgian bakery group Puratos, as well as private equity firms.

“A company the size of CSM is for sale only once. If you want to make steps, now’s the time,” CSM Chief Executive Gerard Hoetmer told Reuters in a telephone interview.

“We see quite a few competitors in the market, which is good news because it means a lot of action and interest.”

Hoetmer declined to comment on any of the names of potential acquirers, saying talks with buyers for the business, which makes muffins and pastries mainly for European and U.S. retailers, have not started yet.

CSM said it expected to have made “significant progress” with the planned divestment by early 2013.

Proceeds from selling the European and U.S. bakery supplies business, which has annual revenue of 2.4 billion euros, will be used to pay down debt, make bolt-on acquisitions, and return funds to shareholders. CSM has appointed Rothschild as its adviser.

CSM’s shares, which plunged 54 percent in 2011 and have continued to fall this year, were up 17.6 percent at 12.84 euros by 1215 GMT.


CSM said it would focus in future on what it called bio-ingredients, which are produced when sugar is fermented using bacteria to produce lactic acid.

Products derived from lactic acid have a wide range of uses in the food and chemicals sectors, for example in meat preservation, cleaning chips in the electronics industry, in cosmetics, and for making plastics based on lactic acid instead of oil.

CSM, like many food companies, has grappled with soaring costs for coffee, milk, grain, edible oils and packaging over the past 12 to 18 months, and has tried to diminish the impact by passing those increases on to consumers through higher prices and by internal cost cuts.

Prices for wheat, sugar and cocoa, which are key ingredients for CSM’s ready-made muffins and croissants, bread and pastry mixes, have surged since early 2010.

The group announced a 50 million euro cost-cutting programme last year, of which 30 million euros is set for 2012, and said it would cut 500 jobs, or 5 percent of its total workforce.

But those measures did not prevent the company from swinging to a surprise net loss for 2011.

By divesting its bakery supplies business CSM will lose the bulk of its revenues.

The remaining units - Purac and Caravan Ingredients - had combined sales last year of 704 million euros. Their combined earnings before interest, tax, depreciation and amortisation (EBITDA) - and before central costs and one-off costs - were 123.5 million euros.

Purac makes lactic acid, used in a range of goods from salad dressings and beverages to household detergents, while Caravan Ingredients produces bakery ingredients such as icings and fillings, emulsifiers, and bakery flavours and colourings.

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