Associated British Foods has reached an agreement in principle to acquire Ebro Puleva’s sugar business for €385m – a deal that would further fortify the world’s second biggest sugar firm.
Ebro announced in May that it was seeking a buyer for Azucarera Ebro – a strategy that would see it exit the sugar market to concentrate on rice, pasta, dairy and functional foods.
The announcement that ABF, sole owner of British Sugar, is a willing buyer will come as no surprise to those who have been tracking the consolidation of the post reform EU sugar market. ABF head of external affairs Geoff Lancaster told FoodNavigator in September that it is “not unreasonable to conclude ABF would be interested”, and hinted at a formal announcement by the end of 2008.
Julian Hardwick, an analyst at ABN Amro, said that on the basis of profits it is not a cheap price, but the profits of all the EU sugar companies are depressed at the moment.
Azucarera Ebro reported earnings before interest and tax in 2007 of €48m.
However he added that the price reflects the cane sugar refinery that Ebro is currently building near Cadiz. It has a contract with British Sugar subsidiary Illovo in Africa for the supply of the raw cane sugar.
In addition to the €385 from ABF, Ebro Puleva will also be in line to receive €141 from other sources, mainly restructuring funds under the sugar reform.
As for ABF, its global sugar production is around 4m tonnes per year. As well as production sites in the UK, it also has factories in Poland, Southern Africa and China.
Not for sure
Ebro Puleva said that the agreement is subject to legal contracts and approval of anti-trust authorities. For its part, ABF also issued a note of caution, with a statement saying “there can be no certainty that a binding agreement will be concluded”.
Hardwick said he could not see any competition hurdles on the horizon. “The EU has not so far raised any problems over other cross border sugar deals.”
He added that an agreement could be announced in the next month or so, with the transaction probably being concluded in March.
The EU sugar scene
Other sugar players rumoured to have been interested in Azucarera Ebro include Sudzucker and EuroSugar.
In July Danisco has announced that it will sell its sugar division to Nordzucker for DKK5600m, around €751m.
The Federal Cartel Office in Bonn said at the beginning of this month that it is extending the competition investigation into the Danisco-Nordzucker deal – although Danisco representatives said this had been expected, given the value.
The green light is not expected before January at the earliest.
The EU sugar market has been going through a period of consolidation in recent years as a result of the sugar reform.
Introduced in Europe in 2006 to improve competitiveness and market-orientation of the EU sugar sector and guarantee its long term future, this involved financial incentives are offered to the less competitive producers to leave the market. The goal is to reduce the volume of sugar on the market by six million tonnes by 2010.