Glenboden M & A Originations

Saudi's Savola set to become international edible oils acquiror

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Origination Status buyer announcement of intent in June 2008
Asset options include Bertolli (Unilever), Kruszwica and Oleina (Bunge)
Sector branded edible oil companies worldwide
Buyer Savola Group (Saudi Arabia), no.1 domestic edible oils producer with 60% market share
Buyer Rationale diversification, exit of multinationals from branded bottled edible oils sector
Seller Rationale exit from low-margin or non –core business, acceptable valuation
NBs Savola’s edible oils business, Afia, claims to be global no.2 in branded bottled sales
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For decades we’ve seen Saudi Arabia pump billions on ‘petrodollars’ into portfolio and real estate investments around the world. Until now, however, no-one’s really thought of a Saudi corporation becoming an international acquirer of operating companies, certainly not in the food business. Is Savola spear-heading a new major trend ? Leaving aside the ‘reality’s stranger than fiction’ irony of fossil oil revenues being re-invested in edible oils assets, there are several factors in favour of this scenario going forward, and no shortage of target companies especially at the national level.

In last month’s Glenboden, we reviewed Unilever’s objective of selling the edible oils part of its Bertolli portfolio. It is perhaps no co-incidence that, shortly after this intention was announced, Savola should publicly state its aim of taking advantage of the exit of big groups like Unilever from the edible oils category. As we argued last month, in the current high commodity cost environment it may be very difficult for Unilever to attract an international buyer that’s prepared to pay a full price for its edible oil businesses. That leaves nationally –based smaller players, maybe family –owned, likely to be able and willing to buy only at a bargain price.

We’re not saying that Savola, just because it’s from oil –rich Saudi Arabia, is going to shower gold on the likes of Unilever in return for their edible oil brands. Savola is, after all, a sophisticated publicly –listed company. We do think, however, that any large group, with an international strategy and a strong balance sheet, will have a significant budget for acquiring leading brands even in edible oils.

Savola is a group with € 1,8 bln in 2007 revenues, a CAGR of 25% since 2003, total equity of € 1,2 bln and only about € 100 mln in net debt. In tandem, the group has made a several acquisitions in recent years, and has pipeline deals in geographies as distant as Ukraine and Brazil. It has € 700 mln of its balance sheet sitting in portfolio investments, waiting to be put to work in acquisitions.

So, Savola has both the means and the momentum to become a serial acquirer of edible oils businesses around the globe. They should be in a position to pitch winning bids of x1 Sales for leading brands in attractive geographies.

But who are the candidates ? We’ve already mentioned Bertolli, which claims to be the world’s leading olive oil brand. Less obvious are the numerous national champions around the globe. Edible oils, of the bottled variety, have a high volume : value ratio that allows local brands to remain strong. In parallel, Unilever is not the only multinational that might be divesting edible oil assets going forward. Take Bunge, the agribusiness giant. It might consider that its branded retail edible oil business is non –core, that foodservice and b2b is where its future lies, especially after its acquisition this month of the sweeteners and starches player Corn Products in the US. In that case it will have leading brands to sell in the big markets of Poland and Ukraine, respectively Kruszwica and Oleina.

The trick is to identify no1 or strong no.2 players in countries with large populations, growing incomes and a trend towards branding and consolidation. Those are assets that Savola might buy.

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