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Expensive taste? Barry Callebaut defends hefty $950m Petra Foods deal

By Nathan Gray+

13-Dec-2012

Market analysts have branded Barry Callebaut’s $950 million takeover of Petra Foods' cocoa division ‘pricey’, but the Swiss chocolate giant has defended the move despite admitting it will hurt its pockets in the short-term.

Speaking with ConfectioneryNews.com Raphael Wermuth, external communications manager for Barry Callebaut said market responses to the deal to buy the cocoa division of Singapore-based Petra Foods, announced yesterday , are not a concern to the company.

Wermuth explained that the deal makes a lot of strategic sense for the company as it can help secure its core business.

“There is an increasing trend that our strategic partners are not only buying chocolate products, but also purchasing cocoa products,” he said, adding that the firm will gain a strong platform for sourcing cocoa in the Asia-Pacific region.

However Wermuth conceded that the deal will hurt the short term profitability of the firm.

“We will continue with volume growth, but of course we expect profitability will be diluted for the initial phase.” 

But he added that the long term strategic benefits brought by the deal should see profits grow to increased levels by the 2015-1015 financial year.

Strategic deal

The $950m (€730m) deal will see Barry Callebaut, already the world's largest producer of finished chocolate, also become the biggest cocoa processor. 

While this may be a great strategic fit for the Swiss chocolate giant, many analysts have warned that the cash deal for Asia’s largest cocoa producer is simply too high of a price to pay for a business that is ‘not particularly profitable.’

"Barry Callebaut is securing a number one position in the fast-growing emerging markets, however at a high price,” said Vontobel analyst Jean-Philippe Bertschy in a research note.

“[The] key challenge will be to restore Petra’s profitability.”

‘Not a bargain’

While many analysts say the deal makes strategic sense, the price – at 14 times the division’s 2011 operating profit – is not cheap.

"The acquisition strengthens Barry Callebaut's competitive position in the cocoa business and boosts sales volume in the emerging markets of Asia and Latin America," affirmed Bank Sarasin analyst Patrick Hasenboehler. "However, the acquisition is not a bargain."

Barry Callebaut countered that emerging markets were driving an annual growth of between 2% and 5% in the cocoa powder market because of rising demand for a range of chocolate-flavored products, including drinks, fillings, pastries and ice cream.

"I would agree it's a full price, but I would also agree it’s worth it," said Barry Callebaut chief executive Juergen Steinemann in an analyst call. "You are buying here market potential ... you are buying a future motor to grow."

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