AMSTERDAM Dutch food ingredients group CSM NV CSMNc.AS has agreed to sell its bakery business for 850 million euros ($1.1 billion) to a U.S. private equity firm and plans to focus on more profitable food ingredients.
CSM put its bakery unit, which makes muffins and pastries for European and U.S. retailers, up for sale in May 2012, blaming weak consumer spending, high raw material prices and the lack of funds to expand the business.
CSM will shed 77 percent of its sales as a result of the divestment to Rhone Capital, and will focus on lactic acid - a product used in a range of goods from salad dressings and beverages to household detergents - as well as bakery ingredients such as icings, fillings and colorings.
CSM shares rose as much as 7.7 percent after falling by a similar percentage last week on speculation that a deal might not go through. The stock was up 6.7 percent at 17.59 euros by 1008 GMT, outperforming a 0.8 percent rise of the Amsterdam midcap index .AMX.
Rhone Capital, an investment arm of Rhone Group LLC, manages more than 3 billion euros in assets. It specializes in middle-market leveraged buyouts and private equity investments in firms with a pan-European or trans-Atlantic presence.
It has investments in the consumer, chemical, energy, industrial, materials, mining, and shipping industries, including German company Evonik's EVON.UL industrial carbon division ECB, and the owner of the Greek yellow pages, Infote.
It was not immediately clear how CSM's bakery supplies operations would fit in with Rhone's current investments.
Rhone will support existing management to expand the bakery supplies business globally and build on its innovation capabilities, Managing Director Steven Langman said in the CSM statement.
No-one at Rhone Group was immediately available for further comment.
CSM, which is also selling its brand name to Rhone, had already told investors it did not have the necessary long-term funds to invest in both its lactic acid products and its traditional bakery business.
CSM's remaining operations grew 7.1 percent in 2012, including currency effects and acquisitions, while the business to be sold grew 6.3 percent.
CSM, which started off as a sugar processor, will use proceeds of the sale to make bolt-on acquisitions, return funds to shareholders, grow organically, pay for pension liabilities and reduce debt, CSM Chief Executive Gerard Hoetmer said, reiterating broadly what the company said last year.
He declined to say how much money could be returned to shareholders but would give more details at an investors' presentation in June. The company will also come up with a new name.
CSM might have between 350 million euros and 400 million, or 5 to 5.50 euros per share, available after paying down debt, ING analyst Marco Gulpers said in a note.
The enterprise value of the sale, which includes liabilities such as pensions, was 1.05 billion euros, CSM said in a statement. Its net cash proceeds are about 850 million euros.
The deal is expected to be completed in the third quarter subject to regulatory approval in Europe and the United States, CSM said.
Rabobank and Rothschild acted as financial advisers to CSM, while Morgan Stanley advised Rhone.
($1 = 0.7694 euros)
(Additional reporting by Sara Webb and Martinne Geller; Editing by Louise Heavens, David Holmes and Richard Chang)