Glenboden M & A Originations

Divestments in CEE after Orkla buys Rieber

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Origination Status buyer announcement, August 2012
Asset Rieber & Son ASA (Norway), leading Nordic food group
Buyer Orkla ASA (Norway), leading Nordic branded consumer goods company
Seller Rieber family and public shareholders
Buyer Rationale income and cost synergies, entry into new markets and categories
Seller Rationale attractive valuation, declining sales and profit
NBs Orkla divested several foods businesses in CE in 2008 -9
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Orkla has signed an agreement with the Rieber family to acquire their compatriot's business. Although the valuation is relatively high, it reflects strong synergies. More interesting is the prospect of secondary divestments in non-core geographies in CEE.

Full valuation ... The valuation seems high for a company in top-line decline (see chart) and implementing cost-cutting and value-enhancing programmes. Elsewhere, mature ambient grocery brands are selling for less (see Premier - Hain origination).

On the other hand, there are clearly significant synergies given geographic and category overlaps. Also, 80% of Rieber's sales derive from no.1 or 2 market positions in five categories in Norway, Sweden and Denmark.

As an aside, we know it's the norm these days but we find Orkla's use of the term 'on a debt-free basis', as a proxy for enterprise value in this deal, to be misleading - it would be more helpful to say 'on a debt-free assumption'.

... Nordic focus ...It's intriguing to know whether Orkla will value and seek to develop Rieber's non -Nordic portfolio. That accounts for 30% of total sales, and covers the Czech Republic (largest of the group), Germany, Poland, Russia, Slovakia and other.

Generally, and with respect to this deal also, Orkla's focus is on the Nordic market, where its strategy is to become a pure-play branded consumer goods company - shedding assets in media, energy and metals along the way.

Three out of the four acquisitions executed by Orkla in 2011 were in the Nordic region. Moreover, Orkla has divested its foods businesses precisely in the CE countries where Rieber is present, selling Kotlin in Poland in 2009, and Guseppe in Czech in 2008.

... CEE divestments to followThe above does not augur well for Rieber's non -Nordic businesses being retained in the enlarged entity. Our sense is that in time they will be sold as bolt-ons to larger players, through MBOs or as a portfolio to private equity.

There should be significant interest - Vitana is one of the Czech Republic's largest and most renowned food manufacturers; Delecta is one of Poland's leading dessert and bake mix brands; Chaka is a well-known Russian brand of nuts.

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THIS LEAD'S VALUATION
Size (€ mln) 830
Sector ambient grocery
Asset Quality Nordic branded category leader
Seller large plc
Buyer large plc
P/S 1,4
P/Ebitda 13,1
Type enterprise value
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