Food and beverage sector mergers and acquisitions comment – June 2008

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Food producers and processors have been hit hard over the past few months by rising commodity costs. Some have struggled to pass these on as retailers are wary of raising prices and passing on costs to consumers in the current economic climate.

A recent Plimsoll report found that a third of the top 1,000 food manufacturers are struggling financially and indeed the effects of rising costs can be seen in the number of businesses being bought out of administration over the past couple of months. In the longer term this is a trend which will drive further consolidation in the industry as businesses seek to protect margins and preserve negotiating power with the multiples.

Deals completed in the UK

IAWS, the Irish bakery and convenience food group, has announced it is to merge with Hiestand, the Swiss frozen baked goods group, in which it already holds a 32% stake. The transaction, which values Hiestand at around £440m, is set to be completed in the third quarter if regulators and shareholders approve the deal. It will create a baked goods company with annual sales of £1.8 billion which will be called Aryzta.

Associated British Foods plc has announced that it is to merge the Jordans cereal and cereal bar business with its Ryvita crispbread and healthy snacks operations. This will create a leading position for the supply of products to meet the increasing consumer demand for natural ingredients and healthy eating. ABF already held a 20% stake in Jordans and the transaction will result in it owning 62% of the combined business. Some cost savings will be achieved and both brands will be developed.

Brakes, the food distribution group, has acquired Woodward Foodservice, the catering supplies business for a reported £20m. The business was sold by Baugur, the Icelandic investor, as part of its strategy of focusing on its retail investments. The deal needs the approval of the OFT before completion.

Marfrig Frigorificos e Comercio de Alimentos SA, the listed Brazil based company engaged in the meat industry, has agreed to acquire a group of businesses based in Brazil and Europe from OSI Group for £346m. The businesses include Moy Park, the UK poultry processor and Kitchen Range Foods, the frozen vegetable producer.

Loch Fyne Oysters has acquired Simson’s Fisheries, the Surrey-based fish wholesaler, for undisclosed terms.

There has been a management buy-out, led by former chairman Sandy Birnie, at Lyndale Group, the bakery chain which had been in administration. The buy-out team acquired most of the group including Hampson and Sayers stores.

Tindale & Stanton, the bakery group which had been in administration, has been acquired by Hobson’s Foods, a newly-created company in which former Tindale & Stanton MD Peter Frankland has a stake.

Ferrari’s, the Welsh group of bakeries in administration, has sold 32 of its shops to ICD Wales. Terms of the deal were not disclosed.

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