On Tuesday, 16th of January 2018, Swiss food group, Nestlé announced that it has agreed to sell its US sweets and chocolate business to Italy’s Ferrero for a whopping amount of $2.8 billion.
“With Ferrero we have found an exceptional home for our U.S. confectionery business where it will thrive. At the same time, this move allows Nestlé to invest and innovate across a range of categories where we see strong future growth and hold leadership positions, such as pet care, bottled water, coffee, frozen meals and infant nutrition,” said Nestlé CEO Mark Schneider.
According to Reuters, the price is twice the multiple of EBITDA (earnings before interest, taxes, depreciation and amortization) that Unilever secured in selling its slow-growth margarine business to private-equity group KKR in mid-December, or roughly 20 times, a person close to the deal told Reuters.
Nestlé’s U.S. confectionery business represents about three percent of U.S. Nestlé Group sales. It includes popular local chocolate brands such as Butterfinger, Crunch, BabyRuth, 100Grand, Raisinets, Chunky, OhHenry! and SnoCaps, as well as local sugar brands such as SweeTarts, LaffyTaffy, Nerds, FunDip, PixyStix, Gobstopper, BottleCaps, Spree and Runts.
According to a statement from Nestlé, the transaction covers the U.S.-focused confectionery brands only and does not include Nestlé’s iconic Toll House baking products, a strategic growth brand which the company will continue to develop. Nestlé remains fully committed to growing its leading international confectionery activities around the world, particularly its global brand KitKat.
This deal will make Ferrero SpA, which is famous for its chocolate-hazelnut Nutella spread, Ferrero Rocher chocolate, Tic Tac sweets and kinder eggs, the third-largest chocolate company in the U.S. and globally. For this deal, Credit Suisse and Lazard advised Ferrero while Davis Polk and Wardwell acted as its legal adviser.
According to Euromonitor, the United States accounts for nearly 19 percent of a global chocolate market worth $102.3 billion at retail. People increasingly choosing more expensive treats have buoyed the value of the market, but volume has been weighed down by the popularity of other alternatives. Nestle has lost market share in recent years, as start-up brands like KIND have grown quickly.
Reuters reported that even Lindt, whose Lindor chocolate balls command premium prices, has felt the pain, reporting on Tuesday that 2017 organic sales rose only 3.7 percent, below its long-term target of 6 to 8 percent. Sales in North America fell 1.6 percent.
In Africa, Confectionerynews.com said that the value of chocolate sales on the continent was estimated at $7.2bn in 2016 and are projected to rise at a Compound Annual Growth Rate (CAGR) of +1.9 percent up to 2021. They also said that FoodTrending predicted that Kenya and Nigeria would be the fastest growing African chocolate markets with +3.2percent CAGR forecast in both markets to 2021. The continent’s largest chocolate market, South Africa, with $1.6bn in 2016 value sales – is expected to grow below the global average at a CAGR of just +1.3 percent.