Glenboden M & A Originations

SunnyD ripens as divestment candidate after buying Fruit20 and Veryfine from Kraft

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Origination Status business unit acquisitions agreement announced, October 2007;
Asset brands and trade of Fruit20 water and Veryfine juice in USA;
Buyer Sunny Delight Beverage Co (USA), leading juice –based drinks producer in North America and Western Europe;
Seller Kraft Foods Inc (USA), multinational foods group;
Financial Terms undisclosed, possibly just the employees;
Buyer Rationale strengthen portfolio of premium juices and drinks;
Seller Rationale divestment of non-core brands, exit from soft beverages ?;
NBs ‘Fruit20 is the leading zero calorie fruit flavoured water, and Veryfine has been providing high quality beverages since 1865’.
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This looks like a great portfolio add-on for Sunny Delight, and at a low price. Traditionally, their brand has been positioned as ‘better-for-you’ than CSDs, but better tasting and cheaper than real juice. Recently, however, the company has tried to premiumise its offering, by launching a new range of smoothies, called FruitSimple, and now by acquiring these two businesses. If SunnyD is successful in ‘morphing’, in this way, into a producer of premium ‘new frontier’ soft drinks, then it might soon become an interesting acquisition candidate for the likes of Pepsico or Coca-Cola.

SunnyD is, after all, owned by the private equity firm JW Childs, who bought it from Procter & Gamble in 2004. There’s a precedent out there, as well - in 2005, SunnyD sold its Punica business, market leader in Germany in nectars, to, yes, Pepsico.

These brands generated sales of only about $135 mln in 2006, for Kraft, way below the ‘$1 bln club’ threshhold for core brands that’s so in vogue amongst the big food groups. Kraft obviously sold these businesses cheaply, because it’s taking a one-off pre-tax impairment charge of $125 mln as a result of their disposal. Accounting discipline dictates that the brands would have anyhow been conservatively valued in Kraft’s books. In fact, the language that accompanies this deal, focusing on Sunny Delight’s acquiring of related production facilities and employees, suggests that this might be one of those situations where the buyer is ‘paying with people not money’.

From Kraft’s perspective, of course the financial and marketing rationale for these disposals is quite compelling. At the same time, it’s quite ominous to see Kraft selling healthy stuff, like enhanced waters and fruit juice, in order to focus on things like biscuits (after the LU acquisition). They’d better be hoping that the global ‘health and wellness’ trend doesn’t go too far.

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