Glenboden M & A Originations

Candidates for Chobani minority share purchase

Priority Rating priority rating 4
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Origination Status market rumours, March 2014
Asset Chobani Inc (USA), no.1 domestic Greek -style yoghurt producer
Buyer candidates include General Mills, Mueller
Seller founder and sole proprietor of Chobani
Buyer Rationale increased presence in fast-growing market segment
Seller Rationale capital injection, internationalisation potential
NBs Chobani has reportedly mandated Bank of America and is talking to 6 potential investors
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The stellar growth of the Greek yoghurt market in the US has mostly been driven by its animator, Chobani. However, the signs are that the company's now running out of steam. We believe that new capital alone won't provide a solution; what's needed is a strategic partner. We try to identify the best candidate.

Rise and stumble of Chobani ...Since being founded by Hamdi Ulukaya in 2005, Chobani has grown to reach sales of US$ 1 bln in 2013, including a 30% increase over 2012. That has proudly been achieved without outside investment.

Inevitably however, with the Greek segment growing from 1% in 2007 to over 40% of the US yoghurt market in 2013, it has drawn in the dairy majors. Both Danone ('Oikos') and General Mills ('Yoplait') have expanded aggressively in that segment recently, with the former claiming now to be joint no.1 with Chobani, and the latter up to 10% market share.

Intensified competition has in turn led to price pressures, especially on the 'Chobani' brand with its relatively small portfolio. According to Sanford Bernstein, 43% of Chobani’s retail sales in 2013 were made at a discount, versus a third for Danone.

... strategic partner the solution ...The above scenario - continued growth but tighter margins - strongly suggests that Chobani is in need of an equity capital injection at this time. Sure enough, reports say that the company is now in discussions with a number of potential investors, including both financial and strategic suitors.

We believe however that, given the realities of the fresh dairy business in the US in general, and of one-category players like Chobani in particular, new capital from an investment fund will not be enough. What Chobani needs is a strategic alliance partner.

... corporate candidates don't fit ...Danone historically has a penchant for taking minority stakes in actual or potential competitors, which allow the group to keep tabs on their development and discourage other majors from launching a takeover. Examples include Lifeway in the US, or Wimm-Bill-Dann in Russia.

However Danone's M&A practices have become more restricted in the post -2008 environment; besides which a Chobani takeover end-game would entail Danone having about two-thirds of the US market for Greek -style or strained yoghurt, which the regulators would oppose.

A more likely contender in theory is General Mills, for whom acquiring Chobani would mean leap-frogging Danone into the US yoghurt market no.1 spot. However, focus on the continued growth of 'Yoplait' might make more sense for that group than dilution of effort through a 'Chobani' minority stake.

... Mueller ticks the boxesWe believe that the best strategic partner for Chobani would be Mueller of Germany. Culturally, both groups are compatible as owner-managed private businesses. That in itself allows Mueller to trump corporations like General Mills or Danone, as a suitor.

Besides which, Mueller is ideally placed to allow Chobani to achieve its so-far thwarted expansion ambitions into the UK because, with 35% yoghurt share, it's market leader there. Plus it works both ways - Mueller's JV with Pepsico in 2012 demonstrates its own ambitions, in the US market.

On top of that, Mueller's recent M&A history, namely the Pepsico JV and acquisition of Robert Wiseman in the UK in 2012, characterise a group that's flexible in terms of the type of businesses and structures it's prepared to back. So, a minority stake in a Greek yoghurt specialist wouldn't be a surprise.

One small problem for the German champion - how to reconcile a Chobani tie-up with its commitments to the Mueller Quaker Dairy joint-venture with Pepsico.

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THIS LEAD'S VALUATION
Size (€ mln) 1.800
Sector dairy products
Asset Quality US no. 1 segment branded
Seller sole proprietor
Buyer privately held group
P/S 2,5
P/Ebitda n.a.
Type enterprise value estimate
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