Glenboden M & A Originations

Who will buy Godiva Chocolatier from Campbell Soup ?

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Origination Status strategic alternatives being explored for subsidiary, August 2007;
Asset Godiva Chocolatier (originally Belgium), world’s leading luxury chocolate business esp. in US;
Buyer candidates include Nestle, Lindt and LVMH;
Seller Campbell Soup Company (USA), global producer of simple meals and vegetable beverages;
Buyer Rationale focus on core categories, timing;
Seller Rationale diversifying luxury portfolio ?;
NBs Godiva is sold through its own or franchised boutiques, finer department and specialty stores.
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Shortly after Campbell’s announcements, news emerged that Lindt & Spruengli, the Swiss chocolate maker, was looking at this deal. Nestle has also been widely touted as a serious candidate. Other chocolate majors like Cadbury and Hershey have also been mentioned. In our view, the luxury business model followed by Godiva makes it incompatible with even the most premium of mainstream chocolate producers, and so Campbell will end up either selling it to a luxury goods group like LVMH or, more likely, to a lesser known candidate for a disappointing valuation.

The surprise here is that Godiva finds itself in Campbell’s portfolio in the first place. The artist Andy Warhol immortalised the Campbell soup brand, in 1962, as an icon of mass consumerism. It’s ironic therefore that the group should also be the owner something as un –mass as a $500 mln annual turnover luxury brand.

Interestingly, the acquisition was made as far back as 1966. In those days, diversification was in vogue, and luxury chocolate certainly represented a diversification from everyday soups. Or maybe Campbell’s management at the time were fed up with being labelled as a mass producer, in the aftermath of Warhol’s pop art stunt only four years earlier.

With strategic focus being a far bigger motivator than diversification, these days, it’s only natural to expect that Campbell would announce its intention to focus on its core portfolio of ‘simple meals, -including soup-based snacks, and vegetable based beverages’.

Besides which, Godiva only makes up less than 10% of the group’s total sales revenue. Finally, there are few synergies in distribution or marketing because the channels, consumers and positioning are so different to mass products.

So prima facie you’d think premium chocolate makers would be queuing up to buy this top luxury segment brand. But maybe that would be to look in the wrong sector. Even premium chocolate producers, like Lindt, sell mostly through regular modern trade, wholesaler and grocery channels.

Godiva, on the other hand, is not just a premium brand but a luxury one; its sales model is consequently very different; through different channels and driven by themes like ‘hand-made’, ‘fresh’, ‘specially for you’. As for Nestle, we’ve already expressed our belief that they’re subtly easing out of confectionery; on top of that Nestle’s strategy doesn’t include luxury products.

Given the above, maybe a big luxury products group will emerge as a buyer? LVMH immediately comes to mind – they’ve already diversified from fashion to champagne and cognac, so why not chocolates next? They would arguably be in a position to pay more than a chocolate producer, given potential synergies, not to mention the ‘trophy valuation’ effect that often occurs with luxury brands.

In that case, the price for Godiva might exceed the x2 sales touted by some analysts. But is chocolate really compatible with luxury going forward ?

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