Glenboden M & A Originations

Ulker makes international breakthrough with Godiva chocolate acquisition

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Origination Status subsidiary divestment agreement reached, December 2007
Asset brands, facilities, subsidiaries, patents and proprietary trade rights of Godiva Chocolatier (originally Belgium), world’s leading luxury chocolate business
Buyer Ulker Group (Turkey), largest domestic food company
Seller Campbell Soup Company (USA), global producer of simple meals and vegetable beverages
Financial Terms total consideration of $850 mln, represents est. P/S of 1,8 and P /EBITDA of 15,0 (2007A)
Buyer Rationale 'trophy' acquisition of luxury brands, national pride, attractive valuation
Seller Rationale focus on core mass -market categories
NBs acquisition dubbed as 'the greatest New Year's gift for the Turkish people'
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What a disappointment for Campbell Soup. When Glenboden reviewed this story a few months earlier, we though the valuation might exceed the x2 Sales touted by some analysts, and that Godiva would attract a luxury products major like LVMH. Instead, no luxury or confectionery multinational emerged as the buyer, but rather a national champion from Turkey. At the same time, Ulker now has a major opportunity for further expansion in the US and other developed markets.

Before this deal, Ulker had virtually no international credibility. A family run, € 5 bln turnover conglomerate, it’s one of Turkey’s biggest industrial groups, whose food interests alone span biscuits, confectionery, soft beverages and dairy products. It’s also present in things as unrelated as telecom and real estate. Its expansion strategy has been across industries, not geographies; its business is nearly all domestic, plus some exports to adjacent countries; there seem to be no foreigners in any of its management teams.

To say that Godiva is a risky venture for Ulker would be an understatement. It’s its first major foreign undertaking, as well as its first venture beyond mass –market products. So, new geography plus new category. But it seems much more is behind this than mere business rationale. Luxury brands generally attain ‘trophy’ status, but in this case that’s coupled with a national pride, that for once Turkey is the ‘groom’ and not the ‘bride’ in the globalization story. That’s a very strong combination.

Ulker’s emergence as the buyer is all the more surprising, when one remembers how many international confectionery players were said to be interested in Godiva – Nestle, Lindt, Mars and Starbucks were all mentioned. So how did this come about ? We think three main reasons.

First of all, brand positioning. Obviously the case for a luxury player to add chocolate to its portfolio of fashion, clothing accessories and fine alcohol was too weak. That leaves premium chocolate players, like Lindt. Clearly here, differences in sales channels etc, between ‘premium’ and the more boutique focus of ‘luxury’, were too great. Plus also it may be that Godiver is facing too much competition from ‘craft’ chocolates with arguably greater authenticity.

Secondly, it looks like Godiva’s financials are not great. There’s been no mention of its growth rate, which suggests it’s quite low. Also, the EBITDA margin comes in at 12%, which is surely very low by luxury brand standards.

Thirdly, and most important in the short term at least, 64% of Godiva’s sales are in the US market, with a further 18% in Japan. Economic weakness in those markets, and projected declines in consumer spending in the US, must have deflated interest in Godiva amongst the majors.

Still, it might be that ‘fortune favours the brave’, and that in a few years’ time, when the US$ recovers to a more respectable level, the acquisition will look like a bargain for Ulker. On top of that, they only need to sell the boutiques, lower the price points, and distribute Godiva through the likes of Starbucks, to increase sales hugely. ‘Bringing luxury to ordinary people’ is made easier when, as reported, brand awareness of Godiva is as high as 89% amongst Americans.

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THIS LEAD'S VALUATION
Size (€ mln) 600
Sector luxury confectionery
Asset Quality global no.1 branded
Seller large plc
Buyer large plc
P/S 1,8
P/Ebitda 15,0
Type total consideration
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