Synnove offers route into Norwegian dairy after improved results
- March 03, 2009
||announcement of FY 2008 results, February 2009
||Synnove Finden ASA (Norway), no.2 domestic cheese brand
||candidates include Arla, Campina Friesland, Lactalis
||shareholders of Synnove (listed on Oslo Stock Exchange)
||unique option for entering high-value Norwegian market
||acceptable valuation after lengthy turnaround
||investment vehicle Scandza made unsuccessful bid for Synnove in late 2007
After financial difficulties, and the development then divestment of non âdairy businesses, Synnove seems to finally have turned itself around. Having a strong no.2 position in the Norwegian market, after the giant co-operative Tine, Synnove represents a unique opportunity for pan âEuropean dairy groups to enter the high âvalue but quite impregnable Norwegian market. Some of the companyâs public shareholders might now welcome a bid from the likes of Arla, Campina Friesland or Lactalis.
Synnove is a legacy cheese brand in Norway, dating back to 1928. Itâs the no.2 player in hard
cheese, with a market share of over 25%, and is significant also in spreadable Norwegian âbrown cheeseâ. It presents itself as the only dairy business in Norway thatâs independent of the co-operative system in that country, since it commercialized in 1995.
The company embarked on a diversification programme in the early 2000s which, combined with continued investment in its core cheese business, caused it to over-reach itself financially.
Synnoveâs main investments were in poultry and eggs, where it saw an opportunity in Norwayâs relatively low per capita consumption, and in âtime criticalâ ready meals, a fast-growing category in all developed countries.
Synnoveâs poultry and eggs venture, Den Stolte Hane, posted strong growth but, in the end, did not have the critical mass to be âstand aloneâ, and was merged into Norwayâs no.2 poultry player, Cardinal Foods. Meanwhile Synnoveâs project in ready meals, Nordic Lunch, also grew very quickly, creating a nationwide chilled distribution system, and expanding into the Swedish market. Again, after such a promising start, the business had to be ceded â this time through sale to Bama Gruppen, in 2006.
In both cases the key problem was that, rather than treat its core cheese business as a âcash cowâ to finance its new ventures, Synnove decided to increase market share in cheese through innovation, advertising and new capacity. The company succeeded in this, at Tineâs expense, but at a price. The company became heavily indebted and broke covenants with its banks; even a new equity issue and a bonds-to-equity swap were not enough to recapitalize it sufficiently.
Attempting to exploit this, the investment company Scandza made a bid for Synnove in October 2007, at an enterprise multiple of x1,0 Sales. This was rejected by management; in spite of its temporary financial issues, the company was a well âinvested asset, with strong market share, a high ârecognition legacy brand, and modern facilities.
In FY 2008 Synnove, as a slimmed âdown and high âproductivity entity, returned to financial health. EBITDA increased by nearly 300%, to exceed âŹ 5 mln equivalent. In the same period, sales revenue grew by 5% to come in at just below âŹ 100 mln.
No longer in the turnaround category, Synnove more easily enters the radar screen, as an acquisition candidate, for the pan âEuropean dairy groups. The companyâs narrow portfolio arguably makes it vulnerable, even in Norway, as a âstand-aloneâ dairy business; it would have greater value within a bigger dairy group, that could treat it as a platform in that country.
In terms of candidates, Arla must figure highly. Itâs already the largest dairy producer in Sweden, Denmark and Finland; Norway would be an obvious next step in that region. Although the group prioritized Germany and Poland for strategic acquisitions, in 2008, Norway would be a more âlow-hangingâ target. In addition, Synnoveâs portfolio fits Arlaâs focus on cheese brands.
Friesland Campina had its merger approved by the EU competition authorities in late 2008. The merger was cash âfree, between the two co-operatives, so the combined balance sheet is ready for the groupâs mission to expand its consumer business in Europe beyond existing core geographies (that donât include the Nordic region).
Last but not least is Lactalis, the privately âheld French giant that seems to have an insatiable appetite for acquisitions in all parts of Europe. Synnove would add to its admirable collection of cheese brands.