Glenboden M & A Originations

Is Bunge best placed to acquire St. Hubert from Dairy Crest ?

Priority Rating priority rating 4
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Origination Status company announcement of review process, March 2012
Asset St Hubert SAS, no.2 brand in French spreads market with 36% share
Buyer candidates include Unilever, Bunge
Seller Dairy Crest Group plc (UK), largest domestic dairy processor
Buyer Rationale leading brand in major geography, edible oil consolidation in Europe
Seller Rationale absence of bolt-on acquisitions in Europe, progressive dividend policy
NBs St. Hubert is also leader in small Italian spreads market with 60% share (Valle brand)
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Dairy Crest appears to be aligning itself to divest its sole significant asset in continental Europe, St. Hubert in France. That spreads business is a stellar performer, and we believe its potential sale confirms a gradual paring-down of the group. Acquiror candidates include Bunge from the US (Cereol until 2002).

Selling a portfolio jewel ...Dairy Crest is staggeringly dependent on its butter & spreads business in profitability terms (see chart), focused on its St. Hubert, Clover and Country Life brands.

When the group acquired St. Hubert in 2007, it was a strong no.2 brand in France with a market share and EBITDA margin both north of 30%. The price multiples reflected that strong performance (see valuation).

Dairy Crest reports that since then, market share and profitability have grown even higher, with e.g. a 27% sales increase in H1 2012 owing to competitor de-listings. So, it's one of the group's most valuable assets at this time.

... Dairy Crest downsizing ..The group is strategically reviewing St. Hubert, with sale an option given the lack of synergistic acquisitions in continental Europe since purchase, as well as group strategy to reduce debt and have a progressive dividend policy.

In recent years Dairy Crest has pared itself down by selling its unbranded cheese business in 2006, and exiting its joint-venture with Yoplait in UK yoghurts in 2009, to focus on a few brands in spreads, cheese ('Cathedral City') and flavoured milk ('Frijj').

Ironically, the group acquired St. Hubert in 2007 from another British group, Uniq, that has since pared itself down to only a small presence in fresh ready foods in the UK, bought by Greencore in 2011. Dairy Crest may be on the same trajectory.

... potential buyers from outside FranceWe think it's unlikely that any of the big three French dairy groups, Lactalis, Bel or Bongrain, will diversify beyond dairy into edible oil -based spreads through acquiring St. Hubert, in spite of the big M&A appetite of Lactalis in particular.

On the European level, Unilever and Bunge appear to be gradually carving up the spreads or 'yellow fats' market between them, with Bunge in particular having been a consolidator in the 2000s.

Having bought Walter Rau in Germany in 2008, and Raisio in Poland (and Finland) in 2009, Bunge has strong positions in those two margarine markets. By acquiring St. Hubert, the group would extend that presence to encompass France also - the Weimar triangle.

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THIS LEAD'S VALUATION
Size (€ mln) 430
Sector chilled spreads
Asset Quality France no.2 branded
Seller large plc
Buyer large plc
P/S 3,9
P/Ebitda 11,1
Type value estimate
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