04 October 2013

Cocoa M&A could get sweeter

Mergers and acquisitions (M&A) are probably not the first thing that springs to mind when thinking of chocolate but if you have an interest in the sweetened foodstuffs produced from the seed of the tropical Theobroma cacao tree then keep on reading as a deal is lurking on the horizon that could lead to two dominating, competing forces in the cocoa market.

With the all-important Christmas season just around the corner, one of the world’s leading cocoa traders is reportedly edging closer to sealing a deal for the cocoa division of US agribusiness behemoth Archer Daniels Midland (ADM). Sources with knowledge of the matter told Reuters that Cargill has entered into the final stages of an acquisition that is expected to pave the way for a company large enough to go head-to-head with Barry Callebaut, billed as the leading supplier of cocoa and chocolate products globally. Details regarding the combination of two of the world’s top cocoa merchants and bean grinders are still on the table but an announcement could well be made within days, the people added.

News that ADM was seriously considering offloading its cocoa business first came to light in June, just shortly after Swiss industrial chocolate giant Barry Callebaut received regulatory clearance to tighten its own dominance of the global market by snapping up the cocoa operations of Singaporean Petra Foods for a mere USD 860 million, a deal which completed at the beginning of July and created a cocoa powder powerhouse with annual sales volume of almost two million tonnes, EUR 4,900 million in revenue and a diversified global footprint with 50 factories on four continents.

ADM remained pretty tight-lipped about the potential disposal in a statement issued at the time, merely revealing discussions are ongoing but may not lead to an agreement and trying to stave off media attention by noting it regularly evaluates strategic options and maintains open dialogue with other crop and seed companies to explore opportunities. However, it is interesting that the sale comes as the agribusiness pushes ahead with plans to acquire Australian independent grains handler and marketer GrainCorp, begging the question whether the crop and biofuels producer has decided to focus on the grains sector.

ADM is as one of the world’s largest processers and suppliers of cocoa and chocolate products, with customers ranging from industrial manufacturers and global retailers to individual artisans and chefs. The business in the spotlight was founded in 1997 and is styled as one of the world’s leading bean grinders, sourcing products from countries worldwide from South and Central America to West Africa and Asia and housing chocolate and cocoa brands such as Ambrosia, Merckens, deZaan and Unicao. The unit is also billed as North America’s largest private-label baking chip supplier, offering a range of items for home baking, toppings and decoration.

Barry Callebaut’s acquisition of Petra Foods’ cocoa operations was the largest announced deal by value targeting the sector in 2012 and accounted for 60 per cent of the USD 1,435 million-worth of deals announced over the 12 calendar months, according to Zephyr, the M&A database published by Bureau van Dijk.

The largest chocolate deal by value so far this year involves Deutsche Bank selling more than a fifth of Turkish confectioner Ulker Biskuvi San ve Tic, a transaction which was worth roughly USD 516 million in the markets at the time of the announcement in July. However, this could be blown out of the water if the ADM deal with Cargill actually goes ahead as, according to Reuter’s earlier report in the summer, the business could be worth as much as USD 2,000 million. The value of announced or completed M&A deals targeting cocoa companies in 2013 to date has already topped that of 2012, coming in at USD 1,734 million but still lags behind the USD 3,442 million recorded by Zephyr in 2011 when two blockbuster deals each topped USD 1,000 million.

© Zephyr