EC approves Ebro sugar business sale to ABF

By Sarah Hills

- Last updated on GMT

Related tags: Sugar, British sugar

Associated British Foods’ €385m acquisition of the Spanish sugar company Azucarera Ebro has been given the go-ahead by the European Commission.

The commission said that the proposed acquisition had been cleared under the EU Merger Regulation, shoring up Associated British Foods’ (ABF) position as the world’s second biggest sugar firm.

Azucarera, owned by the Spanish company Ebro Puleva SA, produces sugar and sugar derivatives from sugar beet grown in Spain and supplies them in Spain and Portugal.

Ebro announced in May that it was seeking a buyer for Azucarera, in order to exit the sugar market and concentrate on rice, pasta, dairy and functional foods.

The ABF subsidiary British Sugar produces sugar from sugar beet grown in the UK and in Poland.

Analysts had said that the acquisition price was quite high but it reflected the fact that Ebro has been building a new cane sugar refinery near Cadiz, which has a contract with the British Sugar subsidiary Illovo in Africa for the supply of the raw cane sugar.

Following an investigation, the commission has now concluded that the acquisition would not “significantly impede effective competition in the European Economic Area or any substantial part of it”.

It acknowledged that there would be a “small overlap in the sale of sugar, where both Azucarera and ABF are active in essentially complementary geographic regions”.

However, it concluded that this would not lead to any significant change in the market structure and that the merged entity would continue to face several competitors.

The commission also said that although ABF, through its subsidiary Illovo, is active in the upstream market of cane raws, which are used as in the production of cane sugar, competitors would continue to have alternatives to Illovo for sourcing of cane raws.

Similarly there was an issue regarding molasses, a by-product of sugar. This is because ABF is active in the downstream market of yeast, which uses molasses, while Azucarera is also a significant producer of molasses in Spain.

During its investigation, the commission found that there were viable alternative sources to Azucarera’s molasses, so competitors would not be closed off from access to the molasses market.

Consolidation

The EU sugar market has been going through a period of consolidation in recent years as a result of the sugar reform.

It was introduced in Europe in 2006 to improve competitiveness and market-orientation of the EU sugar sector and guarantee its long term future. As part of this, financial incentives were 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.

In addition to the €385, Ebro Puleva will also be in line to receive €141 from other sources, mainly restructuring funds under the sugar reform.

Azucarera Ebro reported earnings before interest and tax in 2007 was €48m.

Associated British Foods

ABF focuses on four main business areas: grocery, ingredients (yeast and bakery ingredient production), retail and sugar.

ABF’s global sugar production is around 4m tonnes per year. It has production sites in the UK and factories in Poland, Southern Africa and China.

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