Swiss chocolate maker Barry Callebaut is buying the cocoa business of Singaporean group Petra Foods to reduce its dependence on West African beans as it expands in emerging markets. Barry Callebaut was already the world's biggest maker of finished chocolate products for clients such as Nestle and Hershey, and the $950 million cash deal - its largest yet - will make it the biggest processor of cocoa, too. The Petra Foods cocoa operation, which makes cocoa liquor, butter and powder, produced revenue of $1.3 billion in 2011. It manufactures and sells cocoa ingredients under the Delfi brand to more than 30 countries and customers including Nestle, Cadbury and the Mars Group. Barry Callebaut, which provides the food industry with cocoa and chocolate products, coatings and cocoa powders, said the deal is expected to close mid-2013 and will boost sales volume in fast-growing Asia and Latin America to 31 percent of total sales volume from 24 percent now.
It will also add a second strong base for cocoa sourcing and processing in Asia. The supply of cocoa from Indonesia helps to reduce reliance on West Africa, which accounts for 70 percent of global cocoa supply but has suffered from volatility because of conflict in top producer Ivory Coast. Barry Callebaut said the deal valued Petra at 14.3 times 2011 enterprise value/earnings before interest, tax, depreciation and amortisation. That's more than double the average for the consumer goods and services sector of 6.7 times, according to Thomson Reuters data. Analysts said that Barry Callebaut had paid a high price for a not particularly profitable business.
"Barry Callebaut is securing a number one position in the fast-growing emerging markets, however at a high price. Key challenge will be to restore Petra's profitability," said Vontobel analyst Jean-Philippe Bertschy.
The Petra division reported nine-month revenue fell 20 percent to $778 million, saying the global cocoa ingredients industry was struggling with pressure on margins due to excess supply at a time of weaker chocolate consumption.
Led by businessman John Chuang, Petra said last month it expected chocolate consumption - once thought as recession proof - to stay weak in developed markets but keep growing strongly in Asia. Barry Callebaut said that emerging markets were driving annual growth of 2-5 percent in the cocoa powder market because of rising demand for a range of chocolate-flavoured products, including drinks, fillings, pastries and ice cream.
"I would agree it's a full price,