E&Y - Analysis of transactions in the -CPG - ConsumerProducts_Deals_QuarterIssue 2

E&Y - Analysis of transactions in the -CPG - ConsumerProducts_Deals_QuarterIssue 2

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Unformatted text preview: Issue 2 January–March 2010 Consumer Products Deals Quarterly ConÕdence is returning Analysis of transactions in the global consumer products sector Welcome Welcome to Consumer Products Deals Quarterly — a report from Ernst & Young that analyzes acquisitions and disposals in the global consumer products sector. Contents Overview 1 ConÕdence is returning Volume and value 5 Readers may remember that in our Õrst issue last quarter, we went out on something of a limb, highlighting a mood of cautious optimism and suggesting that early 2010 might prove to be the turning point in terms of deal activity. I am delighted to note that our optimism appears well founded. Volumes and values are rising Top 10 deals 6 Big deals stage a comeback Geographic focus 10 Tale of two regions — developed and developing Sector focus 14 The Õrst quarter of 2010 has seen the much hoped for uplift in volume and value. While we certainly don’t expect the trajectory will be consistently positive from here, early indications for Q2 10 are that the pipeline is full. Although we see no mega-deals on the immediate horizon, strategic deals are back and the mid-market and PE are ready to move. This is good news for the sector and very welcome after what has been a very challenging time for all. Food fuels sector growth Methodology 19 Appendix 20 Contacts 23 Our analysis continues to be based on data collected by FactSet Mergerstat and on insight from our global professionals. In this report we assess what’s driving deals today, which geographies and subsectors are most active and who the key players are. Building out our analysis of key trends, we also look ahead to consider what may happen in the deal space in the next few months. We hope that this data and the perspectives we offer will be of use to the leaders of consumer products companies and to the Õnancial investors who continue to focus on this sector. We are happy to provide further insight on request and I believe we can all look forward to a busy time ahead. David Murray Global Consumer Products Transactions Leader [email protected] 3 ConÔdence is returning Analysis of transactions in the global consumer products sector Overview ConÕdence is returning We believe that the Õrst quarter of 2010 will mark a turning point for deal-makers in the global consumer products sector. The cautious optimism that we noted in Q4 09 has borne fruit in terms of a sharp rise in both deal volume and value. While it is still too early to conclude deÕnitively that Q4 09 was the bottom of the market and that we are now safely out of the woods, there is a sense that conÕdence is starting to recover as the macro-economic picture begins to improve. Many companies have succeeded in boosting their Õnancial strength during the recession through an increased focus on cash generation and working capital improvement, while others have also tapped the corporate bond markets. As earnings rise but interest rates remain low, there is external pressure on both PE and corporates to do deals, rather than accumulate more cash. Although credit remains tight, there are signs that availability is improving in some regions, particularly the US. With means and motive strongly aligned, it is little wonder that deal volumes grew by a third on the prior quarter, while values rose by a staggering 334% (largely courtesy of the Kraft/Cadbury deal, the Nestlé/Kraft deal and the Heineken acquisition of FEMSA). As last quarter, we believe that deals on this scale will do much to build conÕdence at the mid-market levels and encourage further deal activity. Despite growing conÕdence, however, we anticipate that it will take some time before we return to pre-recession activity levels. Global economic recovery is likely to be slow and patchy — with emerging markets continuing to improve much faster than their developed neighbors. Only if the improvement seen in Q1 10 extends through the next two quarters will we feel comfortable in describing the recovery as “established.” Data highlights Q1 10 Volumes are increasing Deal volume in Q1 10 rose by 55 (33%) to 224 from 169 in Q4 09. This was the Õrst quarterly rise in deal volumes since Q2 09. Deal volumes increased against the previous quarter in every subsector, a feat which has not been achieved in any previous quarter since we began keeping our records in Q1 07. Value continues to hold strong At US$43.2b, total aggregate deal value reached its highest level in Q1 10 since the peak of US$88.9b seen in Q2 08. Average deal value (excluding deals over US$5b) was US$201m in Q1 10, an increase of US$61m (44%) against Q4 09. This is the highest level since our records began in Q1 07. Europe dominates volume, US dominates value Europe (excluding the UK) dominated cross border deal volumes in Q1 10 — accounting for 50% of acquisitions (46 deals) and 40% of disposals (37 deals). The US, by contrast, clocked up 54% of acquisitions value (US$19.8b) and 17% (US$6.2b) of disposals — for the most part due to the scale of the Kraft/Cadbury and related deals. Volume rising in developing markets In the BRIC (Brazil, Russia, India and China) economies, China topped the league table with 19 deals (an increase of 9). While China saw an inÖux of foreign capital, Russia was markedly less popular with foreign investors. PE continues to be active There were 40 PE deals in Q1 10, representing 18% of all deals. ConÔdence is returning Analysis of transactions in the global consumer products sector 1 What’s driving deals? What’s holding deals back? In addition to the marked recovery in conÕdence, we see three fundamental deal drivers in the current market conditions: scale, growth and efÕciency. In some instances, there remains a mismatch between buyer and seller expectations around price, particularly as stock markets start to recover and values improve. Buyers are unwilling to pay top dollar while the economic outlook remains somewhat uncertain. Sellers are keen to maximize returns for shareholders and point to rising share prices, as we saw in the Kraft/Cadbury negotiations in this quarter. Scale The case for scale is more compelling than ever. Consumer products companies have high Õxed costs so any increase in volume drops disproportionately to the bottom line. Many companies have found it almost impossible to increase prices as retailers increase pressure on margins in some areas, private label continues to strengthen and consumers are still downtrading. This means that volume is one of the few games left in town and will become ever more important as material costs look set to increase over the next 24 months. Mergers and acquisitions are a quick route to boost volume, which is one reason why activity levels are starting to increase. Growth The decoupling of growth rates between developing and developed markets is creating opportunities for companies wherever they are located. Companies facing Öat growth in mature markets need access to fast-growth developing economies where populations have a higher proportion of young people, a growing middle-class whose afÖuence and consumption is increasing, and there is a growing appetite and appreciation for brands. At the same time, fast-growth companies based in these markets are looking for opportunities to diversify into other developing markets to exploit consumer and product synergies. EfÕciency The quest for efÕciencies is also a perennial deal driver as companies look to control their supply chain, improve control over route to market or drive down their cost base by merging existing businesses. ConÕdence is the key here and macroeconomic indicators will have a strong inÖuence on negotiations and future activity — particularly on the strategic deals front. Opportunistic deals may happen more quickly, as companies with bulging war chests move to acquire weaker competitors. Size matters Q1 10 saw no shortage of strategic deals. The mega-deals this quarter chart new territory in terms of scale and ambition, raising the bar for other companies that wish to remain competitive at a global level. But we believe these deals are also important in terms of the impact they have on appetite and conÕdence lower down the pecking order. There can be little doubt that the mid-market can be a difÕcult place to do business. One of the key trends emerging from the recession has been a move by supermarkets to negotiate even harder on price and to rationalize ranges by as much as 15%–20%.1 While they continue to stock the “must have” brands and to boost their own private label goods, companies supplying tertiary brands (often owned by the smaller consumer products companies) are increasingly being squeezed off the shelf. Businesses without a strong niche offer and a compelling proposition, particularly in more commoditized categories, such as frozen vegetables or wrapped bread, look increasingly exposed.2 At a more granular level, we also note the growing importance of natural and organic product to food, HPC and, to an extent, beverage companies. We anticipate that this is a deal driver that will grow in signiÕcance through 2010 and beyond. 1 Ernst & Young analysis. 2 Ernst & Young analysis. 2 ConÔdence is returning Analysis of transactions in the global consumer products sector PE in transition? Food dominates again There was a total of 40 PE deals in Q1 10, an increase of 21 (111%) against Q4 09. For the Õrst quarter since Q4 08, food dominated the sector not just in terms of the volume of deals, but also in terms of value. Our statistics show that food averages 63% of deals each quarter and accounts for 38% of value. We expect this trend to continue as consolidation continues. These numbers indicate that this quarter saw a comparatively high volume (off a very low base) of lower value deals. Value was down primarily because of two factors — lack of liquidity and the fact that last quarter’s PE value was boosted by CVC Capital Partners’ acquisition of ABInBev’s Eastern European breweries for US$2.2b. We believe that volumes will increase as PE players exit deals in order to re-load balance sheets in readiness for the 2011 fundraising round. Already we are seeing evidence that deals are being expedited so that players can recognize gains and re-invest to access better returns than are available in the money markets. Looking ahead Our view is that recovery in deal activity seems likely to persist. PE is coming back, liquidity is improving and strategic deals are creating opportunity at every level. The marked increase we are seeing in pre-deal activity on both sides of the Atlantic augurs well for a buoyant Q2 and Q3 this year. There is also a sense, particularly in the US, that strong PE interest in consumer products assets is starting to drive up prices. Actions speak louder than words Despite frequent public statements from the US consumer products sector that there is a need to tap into the growth of developing markets, our statistics show that US companies have largely failed to get out of the starting blocks. US cross-border buy-side deals peaked in Q3 07, rallied brieÖy a year later in Q3 08, but have been lackluster ever since. Cross-border European buy-side deals, by contrast, held up better through the recession and rallied strongly this quarter. In terms of developing markets, the BRIC economies recorded 54 deals this quarter, almost double the volume (28) in Q4 09, though it is apparent that some countries are emerging faster than others from recession, with China enjoying marked popularity with foreign buyers (unlike Russia) and Indian companies in particular starting to Öex their muscles in both developing and developed markets. “Increasing material costs will have a signiÕcant impact on consumer products companies in 2010 and most likely for the next two or three years. In the past they may have been able to increase prices, but they are unlikely to have that luxury this time around. The inevitable consequence will be substantial pressure on margins and a need to increase scale and leverage.” John Rothenberg, Chair of the Ernst & Young European Corporate Development Leaders’ Network and former head of M&A at Unilever ConÔdence is returning Analysis of transactions in the global consumer products sector 3 Corporate/PE deal breakdown, Q1 10 Deals announced Q1 10 Q1 09 184 168 76 68 42,417 558 40 8 Total value of deals with disclosed values (US$m) Average value of deals with disclosed values (US$m) Year-on-year change (%) Q1 10 Q1 09 Sequential change (%) 10% 184 150 23% 12% 76 63 21% 5,495 672% 42,417 6,049 601% 81 588% 558 96 481% 39 3% 40 19 111% 11 –27% 8 8 0% 808 976 –17% 808 3,921 –79% 101 89 14% 101 490 –79% 224 207 8% 224 169 33% 84 79 6% 84 71 18% 43,225 6,471 568% 43,225 9,970 334% 515 82 528% 515 140 266% Corporate Number of deals announced Number of deals with disclosed values Total value of deals with disclosed values (US$m) Average value of deals with disclosed values (US$m) PE Number of deals announced Number of deals with disclosed values Total Number of deals announced Number of deals with disclosed values Total value of deals with disclosed values (US$m) Average value of deals with disclosed values (US$m) “We are very positive about the outlook for the rest of 2010. There has been a material pick-up in PE and the fallout from the big deals is creating opportunity for smaller players. Companies had been holding back, but now when they see an opportunity they want to move.” David Murray, Global Consumer Products Transactions Leader 4 ConÔdence is returning Analysis of transactions in the global consumer products sector Volume and value The trend is up Both volume and value improved strongly in Q1 10. Volume rose more strongly than at any point since Q1 07, well before the recession took hold, and values made a dramatic recovery, with average deal values soaring compared with recent quarters. Volume recovery is broadly based Value climbing steeply Deal volumes in Q1 10 were up 33% to 224 — their Õrst quarterly increase after two consecutive declines. SigniÕcantly, deal volumes increased in every subsector, a feat which has not been achieved in any other quarter since we began keeping our records and providing some ground for optimism that the recovery in consumer products will be broadly based. The increase in deals was driven predominantly by the rise in the number of food deals. Deal values made a marked recovery in Q1 10, rocketing an impressive 334% (US$33.2b) to US$43.2b. Though values are still less than half the peak in Q2 08, this performance nevertheless makes Q1 10 the third-strongest quarter since our records began in Q1 07 and the best performance since Q2 08. Deal values Q1 07 to Q1 10 Number of deals 360 376 358 352 302 300 273 260 237 216 207 224 205 200 169 100 Total deal value (US$b) 400 1.0 80 0.8 60 0.6 40 0.4 20 0.2 0 0.0 Q1 Q2 2007 Food 0 Q1 Q2 2007 Q3 Q4 Food Q1 Q2 2008 Q3 Beverages Q4 HPC Q1 Q2 2009 Q3 Q4 Average deal value (US$b) 100 Deal volumes Q1 07 to Q1 10 Q3 Q4 Q1 Q2 2008 Beverages HPC Q3 Q4 Q1 Q2 2009 Tobacco Q3 Q4 Q1 2010 Average deal size Q1 2010 Tobacco At US$515m, average disclosed deal value was up 266% against Q4 09 and was also at its highest since the Q2 08 peak. Even when we strip out the deals worth over US$5b, average deal value was still up a very healthy 43% (rising to US$201m). This is the highest level since our records began. ConÔdence is returning Analysis of transactions in the global consumer products sector 5 Top 10 deals Big deals stage a comeback The top 10 deals in Q1 10 had a combined value of US$39.6b. The Kraft/Cadbury and Heineken/FEMSA deals dominate the grouping, together accounting for 62% of total deal value in Q1 10. The quest for scale, emerging market growth and efÕciency were the drivers behind many of these transactions. The quarter saw food deals account for 61% of top 10 deals and beverages 32%. On average, since we began collecting this data in Q1 07, food has accounted for 34% of top 10 deals and beverages 46%. Also of note, 7 of the top 10 deals involved a US entity, underscoring the fact that although the US frequently lags Europe in terms of volume overall, its businesses dominated the league table this quarter. Top 10 deals, Q1 103 Buyer name Seller name/unit name Disclosed value (US$m) Announced Deal type Kraft Foods, Inc. Cadbury Plc 19,142 19 Jan 2010 Corporate Heineken Holding NV Fomento Economico Mexicano SAB de CV/FEMSA Cerveza SA de CV 7,629 11 Jan 2010 Corporate Beverages Nestlé SA Kraft Foods, Inc./North American Frozen Pizza Business 3,700 5 Jan 2010 Food The Coca-Cola Co. Coca-Cola Enterprises, Inc./North American Operations 3,400 24 Feb 2010 Corporate Beverages Shiseido Co., Ltd. Bare Escentuals, Inc. 1,675 14 Jan 2010 Corporate HPC Diageo PLC Sichuan Swellfun Co. Ltd. 926 2 Mar 2010 Corporate Beverages Groupe Lactalis SA Ebro Puleva SA/Puleva Food SL 860 8 Mar 2010 Corporate Food Coca-Cola Enterprises, Inc. The Coca-Cola Co./Norway & Sweden Bottling Operations 823 24 Feb 2010 Corporate Beverages The Perrigo Co. PBM Holdings, Inc. 808 23 Mar 2010 Corporate HPC Diamond Foods, Inc. Lion Capital LLP/Kettle Foods, Inc. 615 25 Feb 2010 Corporate Food Corporate 3 Please see Appendix for a detailed description of each deal. 6 ConÔdence is returning Analysis of transactions in the global consumer products sector Sector Food Quest for scale The Kraft/Cadbury deal was primarily driven by the desire to build scale in order to drive revenues; open up opportunities to save costs; accelerate margin expansion and speed exposure to highgrowth markets. The result has been to create what Kraft’s chief executive, Irene Rosenfeld, has called a “global powerhouse” that will be able to generate “sustainable, proÕtable growth.” The merger has made Kraft the world’s second-largest food company behind Nestlé. The combined organization now generates 80% of revenues from number one brands, makes the majority of its sales outside the US and has created a footprint from which it can grow its brands in a number of developing markets, including the BRIC countries, parts of Latin America, South Africa and Turkey. Tapping into growth opportunities It is now very evident that some economies are emerging from recession much faster and more convincingly than others.4 For US, Japanese and European consumer products companies in particular, access to faster developing markets is essential to counteract the stagnation in domestic markets. The Kraft/Cadbury deal exposed Kraft to many such territories. Likewise, the Heineken purchase in Mexico and the Diageo purchase in China both provide access to markets where the population is predominantly younger than in developed markets and where a growing middle-class is now earning more money than ever before. As afÖuence spreads, so aspirations increase and appetite for consumer goods, suitably tailored to local tastes and customs and available at the right price, is rising. In particular, Mexico is the fourth-largest beer proÕt pool in the world.5 Heineken’s acquisition of FEMSA will reduce its dependence on Europe and give it leading market share in Mexico, while facilitating expansion into Brazil, the world’s second-most proÕtable beer market. Likewise, Diageo’s purchase of Sichuan Swellfun, provides Diageo with the platform to grow market share in what is China’s fastestgrowing spirits segment, super premium white spirits. It is expected that Diageo will also look to seize the opportunity to grow the brand in new markets. Diageo undertook this deal as part of a mandatory takeover triggered by a previous agreement with another company which owns a controlling stake in Sichuan Swellfun. Japanese personal care provider Shiseido, making the most of the strong yen and keen to diversify out of its saturated domestic market, acquired Bare Escentuals this quarter, a company with a strong position in the fast-growing niche US cosmetics markets specializing in natural (minerals-based) products. The deal is the biggest by a Japanese cosmetics manufacturer since the 2006 purchase of Kanebo Cosmetics by Kao. “The developing markets continue to appear attractive to companies in developed geographies (for example the US and Europe) due to the strength of local currencies, the potential for product reach and above average growth potential.” Greg Stemler, US Consumer Products Transactions Leader 4 Ernst & Young analysis. 5 Heineken, Transforming our Future in the Americas, 11 January 2010. ConÔdence is returning Analysis of transactions in the global consumer products sector 7 Shiseido has ambitions to be a global player in cosmetics and has traditionally been weak in the US. This expansion will strengthen its US presence and will enhance its brand offering in the highly attractive Chinese and broader Asian markets where Shiseido already has a strong foothold. Seizing opportunities The Lactalis deal is an example of how global consolidators are starting to make a move for attractively priced businesses that have not been able to respond to market challenges such as losing market share. Spain’s dairy sector has been hit hard by the downturn (Ebro Puleva’s dairy revenues fell by more than 12% in 2009,6 as consumers have increasingly switched to private label). The deal will enable Ebro Puleva to re-focus its business on its rice and pasta operations, where it has the scale and international presence necessary for survival in the increasingly competitive food subsector. It gives Lactalis, which has been scaling up in Spain, increased bargaining power with retailers to compete against private label. EfÕciency a constant requirement Q4 09 saw PepsiCo decide to repurchase the un-owned portion of its bottling group. Drivers of this deal appeared to be a desire to safeguard its ability to get its product to market, irrespective of economic conditions, and a concern to eliminate costs and drive growth through a seamless introduction of new products. In what looks like a direct response, the two Coca-Cola deals in Q1 10 appear to mirror this strategy, enabling the group to secure its route to market, streamline costs and build more Öexibility in distribution. Other top 10 deals this quarter include Nestlé’s acquisition of Kraft’s frozen pizza business for US$3.7b — widely seen as an enabler of the larger Kraft/Cadbury deal — also the sale by Lion Capital of Kettle Foods to Diamond Foods in the US for US$615m. This latter deal is an example of a private equity investor exiting at the right time with a good return. The Perrigo acquisition of PBM Holdings could also be interpreted in this vein. Perrigo is a private-label manufacturer which has done well during the recession as consumers have started to trade down or switch to private label. The deal will allow Perrigo to strengthen its already strong relationships with US retailers and will enable it to grow private-label share in the increasingly important over-thecounter (OTC) baby formula market in North America. 6 just-food.com, Ebro Puleva sells dairy business to Loctalis, 8 March 2010. 8 ConÔdence is returning Analysis of transactions in the global consumer products sector Making 2+2=5 Fundamentally, consumer products deals are all about brands. But while strong brands (and their loyal customers) are essential for deal success, bid negotiations offer synergies which are easier to quantify. Accurately evaluating the level of synergy a deal will generate is the key to assessing value in consumer products mergers and acquisitions. It is core to pre-deal decision making, helping companies decide up front the key parameters of the transaction — the price range, terms and conditions — that will generate a suitably attractive uplift in value for shareholders longer-term. As part of their due diligence, companies will attempt to assess the opportunities for synergy in areas like headquarter functions, manufacturing facilities, purchasing, distribution and advertising. Typically, they will look to identify opportunities to streamline functions and eliminate duplication in order to cut costs and reduce the footprint of the organization in terms of both people and facilities. Businesses will also seek to explore opportunities to leverage their newly acquired scale in high-cost areas such as purchasing, sales, advertising and the all-important distribution, so often a driver for M&A activity, particularly in developing markets. Having identiÕed possible savings, the focus will be on when they can be achieved and at what cost. There is little point in proceeding with a deal if labor laws in the target’s country or pensions funding issues negate the savings that could otherwise be achieved. Regulatory concerns may also affect progress if deals become mired in anti-trust negotiations. The pre-bid template that is produced as a consequence of this effort becomes a key part of the sales pitch to shareholders and informs the negotiation process. If there is scope for signiÕcant savings, the acquirer has more Öexibility on price for example, provided enough of a cushion has been built in to satisfy market expectations. This deep understanding of how and where value will be generated is what enables companies to maintain the right balance between aggression and concession as discussions unfold. If the due diligence has been done well, the work that happens immediately post transaction when all the target’s data become available to the acquirer should serve to conÕrm the valuation and the timing of the payback for shareholders. Our expectation is that most deals should be substantially delivering on their promises within two years of closing. ConÔdence is returning Analysis of transactions in the global consumer products sector 9 Geographic focus A tale of two regions — developed and developing Two themes emerge in the analysis of deals by geography this quarter: the contrast in activity levels between the US and Europe and the mixed experience of the BRIC economies. Our sell-side analysis for both regions shows the same trend — since Q1 07, the volume of European cross-border deals has consistently outstripped the number of US deals. Balancing the overall trend in terms of volume and value, US deals feature prominently in the league table of top 10 deals. Q4 73 60% 20% 0% Europe Q1 2010 United States Value comparisons Historic analysis shows that since 2007, the US has accounted for the majority of deal value (buy and sell-side) in two quarters — Q1 07 and Q1 10. In terms of value the picture was reversed this quarter, due primarily to the Kraft/Cadbury and Kraft/Nestlé deals. 7 The volumes recorded in this chart relate to cross-border deals. 8 The deÕnition of Europe in these charts includes former East European countries and Russia. 10 27 45 Q3 21 63 Q1 Q2 2009 21 28 Q4 54 Q3 20 Q1 Q2 2008 53 58 28 80 42 38 108 Q4 28 Q3 64 98 36 92 48 41 Q1 Q2 2007 80% 40% In Q1 10, the US accounted for only 13 (14%) of buy-side crossborder deals by volume, a decline of 4% on the prior quarter but a marginal improvement on the low point in Q3 09 when it accounted for 11 (12%) of deals. European countries, by contrast, were involved in 46 overseas purchases (50%) in Q1 10 — an increase of 13% on the prior quarter and the highest number of buy-side deals since Q3 08. 102 Volume comparisons 100% 43 Our analysis since Q1 07 indicates that Europe is consistently ahead of the US in terms of both the volume and value of deals. This is true whether we deÕne Europe only as Western Europe, or whether we expand our deÕnition to include former East European countries such as Russia. Europe/US volume7 comparisons, Q1 07 to Q1 108 93 Transatlantic deal perspectives ConÔdence is returning Analysis of transactions in the global consumer products sector 26.0 1.6 4.5 2.5 0.6 0.3 4.8 53.4 3.5 4.9 8.3 1.6 100% 4.7 Europe/US value9 comparisons (US$b), Q1 07 to Q1 108 80% 60% Q1 Q2 2009 Q3 Q4 14.6 3.5 Q4 5.0 1.4 Q3 5.2 5.1 Q1 Q2 2008 0.9 56.6 5.4 Q4 25.0 54.9 Q3 3.0 Q1 Q2 2007 20% 3.1 40% 0% Europe United States Q1 2010 Figures is US$b Why is the US doing fewer cross-border deals? Market information consistently points to the aspirations of US corporations to buy assets overseas, and in particular to do bolt-on deals in emerging markets. The impact of the recession, on top of Öat or declining growth in the domestic market, has accentuated the need to Õnd new sources of volume growth. We do not believe that lack of cash has been a deal inhibitor, as consumer products businesses are cash-generative and many have taken the opportunity through the recession to sharpen their focus on reducing leverage, improving cash Öow and driving liquidity through working capital improvement. Furthermore, there are signs that credit lines are opening up more quickly in the US than in other territories. Certainly a key inÖuencer of deal appetite is currency strength, so countries with currency advantage are more likely to be on the acquisition side of a deal. Another factor is that historically, US companies have not had to look outside national borders for growth. This is in direct contrast to Europe, where there is a stronger tradition of tapping into international markets and more balanced geographic portfolios as a consequence. Although cultural issues are never cited as a deal-breaker at the multinational corporation level, it is also our view that many national corporations are likely to prefer domestic deals where possible. In our discussions with clients, we believe that concern around the potential for rising inÖation, currency devaluation and commodity price rises is also giving US boards pause for thought. This is leading to some conservatism in pricing models as companies hold back cash to cushion potentially difÕcult times ahead. 8 The deÕnition of Europe in these charts includes former East European countries and Russia. 9 The values recorded in this chart related to cross-border deals. ConÔdence is returning Analysis of transactions in the global consumer products sector 11 Europe — a major player Extending our analysis to a global view of deal volume and value, Europe (excluding the UK) by contrast accounted for 50% of global cross-border acquisitions and 40% of global cross-border disposals by volume in Q1 10. Around 45% of Western European sell-side deals were bought by Buyer region by volume Q1 10 2% 3% Seller region by volume Q1 10 2% 4% 5% In food, Dutch bakery products business CSM continued to consolidate its global leadership position with the US$510m cash purchase of Best Brands, one of the largest premium bakery manufacturers in the US, with particular strength supplying instore bakeries. The acquisitive Irish food company Kerry Group also continued to expand its global footprint by buying the cereal ingredients business of Nutracea out of Chapter 11 bankruptcy. 11% 4% 7% 40% 50% We also note a trend this quarter for European companies buying up US businesses. While Nestlé’s acquisition of Kraft’s pizza business and Shiseido’s purchase of Bare Escentuals dominated US deals by overseas buyers in terms of value, the US also continues to offer smaller-scale cross-border consolidation opportunities. 14% 14% 15% 15% 14% Japan India Canada UK Other US Asia-PaciÕc In HPC, L’Oréal continued to strengthen its salon supply network with the acquisition of family-owned distributors Maly’s Midwest and Marshall Salon Services. L’Oréal estimates that the US salons supply network is made up of some 200,000 salons, of which L’Oréal now covers 80%.10 Europe other Western European companies. Some of these have been driven by the recession exposing weaker players; some by the general trend towards consolidation in the sector. 10 FactSet Mergerstat, 31 March 2010. 12 ConÔdence is returning Analysis of transactions in the global consumer products sector Mixed experience in developing markets Countries in the BRIC grouping (Brazil, Russia, India and China) had a mixed experience in terms of deals in Q1 10. Joint ventures facilitate access to developing markets For the moment, Russia has decoupled from the other BRIC markets. Real GDP in Russia is expected to grow just 3% in 2010, on the back of an 8% decline in 2009.11 This is in direct contrast to China, India and Brazil, all of which are expecting substantial growth. Real retail sales are expected to grow just 4% in Russia in 2010, having fallen 5% in 2009.12 Much of the developing market activity by the major consumer products companies is focussed on increasing stakes in, or taking full control of, existing joint ventures. Although it is not possible to track this trend through our data, it appears, based on our observation of market behavior, that the pace of these deals is accelerating, and we believe it will continue to do so. A number of deals complied with this pattern in Q1 10: Russia was distinctive in that by far the greatest proportion of its activity (14 deals out of a total for the quarter of 17) was in-border. China topped the league for inward investment from foreign companies (6 deals) while India led in terms of outward investment (3 deals). Brazil, mirroring the experience that characterized the whole of 2009, saw a broadly even balance of deals and a relatively low volume — only 8 deals in total. Readers should note that our data relates only to publicly announced deals. We recognize that many deals, particularly in developing markets, are private and that the volume and value of these deals may outstrip public deals. Ź In India, Colgate Palmolive acquired the remaining 25% stakes it did not own in two joint ventures (Hyderabad-based CC Health Care Products Pvt and Goa-based Professional Oral Care Products). Ź In China, SABMiller’s joint venture China Resources Snow Breweries acquired the remaining 10% stake in a separate JV in Binzhou. The major players are also continuing to forge new joint ventures in developing markets — often the only practicable way to enter a market or increase penetration. Ź In Q1 10 Nestlé acquired a 70% stake in Yunnan Dashan Drinks Co Ltd for RMB70m (US$10.3m), through its subsidiary Nestlé Waters. Yunnan Dashan Drinks Co Ltd is a producer of canned soft drinks and bottled water. Ź In tobacco, Philip Morris agreed a joint venture with Fortune Tobacco in the Philippines, giving it an approximate 90% market share. Fortune is a desirable asset in what is a key emerging market for tobacco. The Philippines enjoys a favorable combination of high volumes and comparatively low regulatory controls and excise duties. We believe that the joint venture will also be in a strong position to lobby against any changes. As to be expected, we see fewer companies exiting joint ventures, although an element of this is inevitable as companies reshape and hone their brand portfolios. Ź Danone sold its 50% stakes in two Eastern European businesses in Q1 10 (Polska Woda in Poland and Magyarviz Asvanyviz in Hungary), both to its joint venture partner, the Italian group, Acqua Minerale San Benedetto. 11 Russia: bouncing back: Local perspectives on products in the consumer products sector, January 2010 (Ernst & Young). 12 Global Insight, 8 April 2010. ConÔdence is returning Analysis of transactions in the global consumer products sector 13 Sector focus Food fuels sector growth After a quirky Q4 09, in which household and personal care (HPC) was the only subsector to record an increase in volume, Q1 10 saw a return to form by the food subsector in particular. For the Õrst quarter since Q4 08, it dominated not just in terms of volume, but also in terms of value. Tobacco was the only subsector not to chalk up an increase in value. A review of the last Õve quarters shows that the ratio of deals by volume remains relatively constant, with beverages and HPC showing the greatest volatility. Sharp recovery in volume and value of food deals Food had 143 deals in Q1 10, an increase of 40 (39%) on Q4 09. This meant that the volume of food deals was at its highest since Q4 08. On average, food has accounted for 63% of deals in every quarter since our records began in Q1 07. Total deals announced by subsector (volume) Q1 09 to Q1 10 Q1 2010 64% 21% 13% 2% Q4 2009 61% 22% 17% Q3 2009 60% 26% 11% 3% Q2 2009 57% 26% 13% 1% 4% 224 169 205 The value of food deals in Q1 10 was US$26.6b, up 695% on the US$3.4b achieved in the prior quarter, largely as a result of the Kraft acquisition of Cadbury for US$19.1b. Nestlé’s acquisition of Kraft’s frozen pizza business was the next-largest food deal in Q1 10. 237 Number and value of food deals Q1 07 to Q1 10 60% 29% 10% 0% 207 40 300 0% 20% Food 40% Beverages 60% 80% HPC 100% Tobacco 30 Food and beverage deals together accounted for 85% of total deals this quarter, in line with the historical trend of these two categories accounting for 80%–90% of total deals. Volume 200 20 100 10 0 0 Q1 Q2 2007 Q3 Q4 Q1 Q2 2008 Volume 14 Q3 Q4 Q1 Q2 2009 Value ConÔdence is returning Analysis of transactions in the global consumer products sector Q3 Q4 Q1 2010 Value (US$b) Q1 2009 Beverage volumes move up HPC continues to perform well Beverages had 47 deals in Q1 10, an increase of 10 (27%) on Q4 09. We are encouraged by this upward trend and believe the subsector will continue to improve. HPC had 30 deals in Q1 10, an increase of 2 (7%) on Q4 09. This is the highest number of deals by this subsector since its equivalent performance in Q2 09, although at 13%, the subsector was 4% down on its proportion of overall deals, compared to the prior quarter due to the resurgence of other subsectors. Looking back over the last two years, HPC deals have held up well compared to other subsectors. Total beverage deal value in Q1 10 increased by US$8.9b (206%) to US$13.2b. This substantial increase was largely due to the acquisition by Heineken of FEMSA Cerveza SA for US$7.6b and Coca Cola’s acquisitions. As rumors continue to circulate of global consolidation in this subsector, our expectation is that deal volume and value will continue to pick up through 2010. Number and value of beverage deals Q1 07 to Q1 10 100 60 80 40 60 30 40 20 20 10 Total HPC deal value in Q1 10 increased by US$1.2b to US$3.4b. The largest HPC deal in the quarter was Shiseido’s acquisition of Bare Escentuals for US$1.7b, followed by the acquisition by Perrigo of PMB Holdings for US$808m — the two deals together accounting for a substantial portion of value achieved this quarter. 12 50 10 40 Volume 8 30 6 20 0 0 Q1 Q2 2007 Q3 Q4 Q1 Q2 2008 Volume Q3 Q4 Q1 Q2 2009 Value Q3 Q4 Q1 2010 4 10 Value (US$b) Value (US$b) Volume Number and value of HPC deals Q1 07 to Q1 10 2 0 0 Q1 Q2 2007 Q3 Q4 Q1 Q2 2008 Volume Q3 Q4 Q1 Q2 2009 Q3 Q4 Q1 2010 Value ConÔdence is returning Analysis of transactions in the global consumer products sector 15 No signiÕcant activity in tobacco There were no tobacco deals with disclosed values in Q1 10. Given that the tobacco sector is now largely consolidated, we expect that going forward, the major global players will concentrate on smaller deals to build local scale or on deals that expand their product ranges beyond the traditional tobacco-based products. Number and value of tobacco deals Q1 07 to Q1 10 20 10 15 6 10 4 Patricia Novosel, Global Food Leader 5 2 0 0 Q1 Q2 2007 Q3 Q4 Q1 Q2 2008 Volume 16 Value (US$b) Volume 8 “Food is going to continue to dominate the headlines over the next 12 months. We believe the subsector is ripe for consolidation and that companies will continue to pursue scale in order to drive down costs and maintain proÕtability. We expect that the focus on core categories by major players will be accompanied by increasing interest in health and wellness.” Q3 Q4 Q1 Q2 2009 Q3 Q4 Q1 2010 Value ConÔdence is returning Analysis of transactions in the global consumer products sector Healthy appetite for food deals At 33%, the Q1 10 increase in deal volumes was impressive. Although this is only one quarter’s Õgures, the upturn in deal activity arguably points to an increasing conÕdence to transact, allied with a growing recognition that the game has changed, and that without leveraging the beneÕts of scale and the synergies from M&A, food companies will struggle to improve their proÕtability and ultimately their valuations. Deal volumes are rising against the backdrop of increasing market pressures: lack of pricing power, plus increasing pressure from retailers in terms of greater support for private label, tougher negotiations and drastic range rationalization (see page 4). The threat of rising commodity costs is also a concern. We are likely to see sustained upward pressure on commodity prices over the next 20 years as higher global income growth increases demand for food and meat, and higher oil prices result in the diversion of crops from food production to biofuel. In this climate of escalating pressures, we have seen a broad range of deal activity in Q1 10. Transformational deals Ź In developing markets, French group Bongrain strengthened its Eastern European cheese operations with the purchase of Romanian business SC Delaco. Ź As well as domestic consolidation in the fast-growing Chinese dairy market, the leading powdered milk formula products producer and distributor, Rodobo, has been particularly active buying up a number of smaller competitors. Other categories where we have seen consolidation in Q1 10 include sugar (principally in Brazil), meat (particularly in Canada), baked goods (Europe and US) and confectionery (numerous geographies). Portfolio reshaping and brand divestments The Kraft/Cadbury deal and the Nestlé/Kraft deal demonstrate the direction of travel for food company deals. Even the major players need to secure volume growth and these deals can only serve to raise the bar for others. The drive by companies to hone their brand portfolios has also been another signiÕcant driver of deal activity in the food subsector this quarter. A number of deals Õt this pattern: Ź Nestlé’s purchase of Kraft’s pizza business, although tied up with the Cadbury deal, represented a good opportunity for Nestlé to acquire a complementary asset. Ongoing consolidation Consolidation is a theme across consumer products as a whole and this subsector in particular. Both the dairy and beef markets have seen a number of signiÕcant moves this quarter: Ź Unilever licensed its Shedd’s Country Crock Chilled Business in the US to Hormel Foods. Ź French group Lactalis continued its role as one of the key consolidators in the category with the purchase of Ebro Puleva in Spain, as well as the cheese operations of Grupo Forlasa in Spain. Ź As we moved into Q2 10, Unilever Italy announced its intention to Õnd a buyer for its frozen food business, Findus. Permira and Lion Capital are reported to have lined up advisers. Ź Danone exited its joint ventures in Poland and Hungary. Ź The Irish company Kerry Group is trying to buy Newmarket Creameries (increasing its offer after its initial bid was rejected). ConÔdence is returning Analysis of transactions in the global consumer products sector 17 PE activity picking up PE activity is picking up across the board, particularly exits as companies seek to realize value from existing assets in advance of the new funding round. The Diamond Foods acquisition of Kettle Foods from Lion Capital is one example of this trend. What is the future for food? Looking ahead, we expect food deal volumes to accelerate further (although maybe not at the same pace as in Q1 10) as the search for scale and new growth opportunities in developing markets continues. We anticipate that deal volumes will be boosted by a number of factors, including: Developing markets Ź Changes in the exchange rate making deals more or less attractive depending on the location of the parent company This quarter has seen many domestic deals across the BRIC region, particularly consolidation in the dairy sector in China, a similar trend in sugar involving India and Brazil and in Russia a number of domestic deals involving baked goods companies. Ź US and Japanese companies leveraging their currency advantage There have also been a number of cross-border deals by the major food players, for example the purchase by Nestlé of a Ukrainian food company Tekhnokom, which manufactures prepared Öour mixes and spices. Ź Continuing focus by major players on core categories Ź A greater role for developing-market companies on the global stage as economies strengthen Ź Increasing focus on natural products and health Ź PE food exits accelerating Ź Some “fall out” (although limited) from major deals, notably Kraft/Cadbury Rise of the new global champions Another trend which is becoming increasingly apparent is the success of developing-market companies on the global stage. JBS, the Brazilian meat company, building on its past successes, is continuing to do cross-border deals — for example the acquisition this quarter of Canadian pet-food manufacturer Wedel and meat producer Rockdale Beef in Australia. Indian company Shree Renuka likewise is on a global buying spree which this quarter has seen it acquire a majority stake in a Brazilian sugar business, a subsidiary of Grupo Equipav. 18 ConÔdence is returning Analysis of transactions in the global consumer products sector Methodology Data source and industry scope Qualifying deals Consumer Products Deals Quarterly is based on Ernst & Young’s analysis of FactSet Mergerstat data from Q1 07 to Q1 10. Data was pulled from the FactSet Mergerstat database using standard industrial classiÕcation codes. Ź Deals include transactions between companies in the four consumer products subsectors; consumer products companies acquiring businesses in other subsectors; non-consumer products companies acquiring consumer products companies. For the purposes of this publication, our deÕnition of consumer products is only those companies in the food, beverages, tobacco and HPC subsectors. Ź PE deal activity includes both full- and partial-stake transactions and was analyzed based on acquisitions by Õrms classiÕed as PE, alternative investment management groups, certain commercial banks, investment banks, venture capital and other similar entities. Deal activity and valuations may Öuctuate slightly based on the date that the FactSet Mergerstat database is accessed. Ź For non-consumer products acquirers, deals were classiÕed based on the consumer products sector of the seller. Ź Equity investments were included (corporate and PE). Ź Joint ventures were not included. Ź The value and status of all deals highlighted in this report are as at 31 March 2010. Ź All dollar amounts are in US$ unless otherwise indicated. Ź There is no minimum US$ deal threshold. Ź Only disclosed deal values (as per FactSet Mergerstat) are used in all value analyses. Ź As used in this report, “total value” refers to the aggregate value of deals with disclosed values for the period under discussion. ConÔdence is returning Analysis of transactions in the global consumer products sector 19 Appendix * Description of top 10 deals Q1 10 Buyer name Kraft Foods, Inc. Heineken Holding NV Nestlé SA The Coca-Cola Co. Seller name/ unit name Cadbury Plc Fomento Economico Mexicano SAB de CV/FEMSA Cerveza SA de CV Kraft Foods, Inc./ North American Frozen Pizza Business Coca-Cola Enterprises, Inc./North American Operations Disclosed value (US$m) 19,142 7,629 3,700 3,400 Announced 19 Jan 2010 11 Jan 2010 5 Jan 2010 24 Feb 2010 Deal type Corporate Corporate Corporate Corporate Sector Food Beverages Food Beverages Synopsis On 19 January 2010, Kraft Foods Inc made a Õnal recommended offer to acquire Cadbury Plc for GBP11.7b (US$19b) in cash and stock. Under the terms of agreement, Kraft made a Õnal offer of GBP5 (US$8.173) in cash plus a stock swap of 0.1874 new Kraft shares per each Cadbury share sought. Kraft also offered a mix and match facility under which Cadbury shareholders can elect, subject to availability, to vary the proportions in which they would receive cash and new Kraft shares. Following declared unconditional, the Cadbury shareholders were entitled to receive GBP0.1 (US$0.1636) per Cadbury share by way of a special dividend. The cash portion of the offer was funded from its own resources, funds available from an amended bridge facility and proceeds from alternative Õnancing sources. Kraft stated that they believed that by combining their business with Cadburys they would create “a global powerhouse in snacks, confectionery and quick meals, with an exceptional portfolio of leading brands around the world.” Kraft Foods believes that “it is the most logical acquirer of Cadbury. No other potential offeror has publicly declared its interest in acquiring Cadbury.” Kraft originally made an indicative offer of GBP3 (US$4.9038) cash per share and a stock swap of 0.2589 new Kraft Foods share per each Cadbury share sought on 7 September 2009, which was immediately rejected by Cadbury, which stated in a press release to UK Wire that they felt the offer fundamentally undervalues the company and that the Board was conÕdent in Cadburys’ standalone strategy. In response to the formal offer, Cadbury rejected the offer, reiterating that they felt the offer continued to undervalue the company. On 6 January 2010, the European Commission gave a conditional approval for Kraft Foods Inc to acquire Cadbury Plc. The Board of Cadbury unanimously recommended its shareholders to accept Kraft Foods’ Õnal offer made on 19January 2010. Kraft Foods Inc announced that it reserved the right to reduce the number of acceptance required to fulÕll the acceptance condition from 90% to 50%. The Cadbury shareholders who had accepted the previous offer were automatically deemed to have accepted the Õnal offer. As of 1 April 2010, the offer will remain open until 16 April 2010. Heineken NV, a subsidiary of Heineken Holding NV, acquired FEMSA Cerveza SA de CV from Fomento Economico Mexicano SAB de CV for MXN96.6b (US$7.6b) in stock, net debt and pension obligations. With the transaction, Heineken will be given a big role in a large and proÕtable emerging beer market, helping the brewer offset its heavy presence in mature, slow-growing markets in Western Europe. For FEMSA, the sale to Heineken can help it improve its marketing in Mexico, where it has steadily lost market share to its rival over the past decade. At the close of the transaction, FEMSA will hold a 20% stake in Heineken Group, with 12.5% of Heineken NV and 14.9% of Heineken Holding. Heineken Holding will maintain its 50.005% stake in Heineken NV. It will also have the right to appoint two non-executive representatives to the Heineken’s board and one of these representatives will also be appointed to the board of directors of Heineken Holding and the other will be a Vice Chairman of the Heineken NV. The transaction is expected to close in the second quarter of 2010 and is subject to the customary approval of the relevant regulatory authorities and the approval of the shareholders of Heineken, Heineken Holding, and FEMSA. Based in Nuevo Leon, Mexico, FEMSA produces and markets beer. As of 29 March 2010, the Antimonopoly Authority of Mexico approved the transaction. Nestle SA acquired the North American frozen pizza assets and business of Kraft Foods Inc for US$3.7b in cash. The transaction would include two manufacturing plant and brands such as DiGiorno, Tombstone, California Pizza Kitchen, Jack’s and Delissio. The acquisition would provide strategic pillar to Nestle’s frozen food portfolio in the US and Canada. Also, the transaction would bring leadership in the frozen pizza category, where Nestle only had a minority presence. Following the acquistion, 3,620 Kraft Foods’ pizza employees will join Nestle. Kraft Foods Inc manufactures and wholesales food products. Kraft’s pizza business has estimated sales of US$2.1b in 2009. The Coca-Cola Co agreed to acquire the North American operations of Coca-Cola Enterprises Inc for an undisclosed amount. According to the agreement, the transaction will be mostly cashless and The Coca-Cola Co will assume US$8.88b of Coca-Cola Enterprises Inc’s debt and all of the North American assets and liabilities. The North American business consists of 75% of The Coca-Cola Co’s US distribution as well as 100% of the Canadian volume. Through this acquisition, The Coca-Cola Co will have over 90% control over its North American distribution. As part of the deal, Coca-Cola Enterprises Inc will be acquiring The Coca-Cola Co’s bottling operations in Norway and Sweden for US$822m. Within 18 to 36 months after closing, Coca-Cola Enterprises Inc will also have the right to purchase 83% of The Coca-Cola Co’s German bottling operations. The deal is expected to close in the fourth quarter of 2010. * Information supplied by FactSet Mergerstat. 20 ConÔdence is returning Analysis of transactions in the global consumer products sector Shiseido Co., Ltd. Diageo PLC Groupe Lactalis SA Coca-Cola Enterprises, Inc. The Perrigo Co. Diamond Foods, Inc. Bare Escentuals, Inc. Sichuan Swellfun Co. Ltd. Ebro Puleva SA/Puleva Food SL The Coca-Cola Co./Norway & Sweden Bottling Operations PBM Holdings, Inc. Lion Capital LLP/ Kettle Foods, Inc. 1,675 926 860 823 808 615 14 Jan 2010 2 Mar 2010 8 Mar 2010 24 Feb 2010 23 Mar 2010 25 Feb 2010 Corporate Corporate Corporate Corporate Corporate Corporate HPC Beverages Food Beverages HPC Food Shiseido Co Ltd acquired Bare Escentuals Inc for US$1.7b in a cash tender offer. Bare Escentuals Inc shareholders received US$18.20 per share in cash. Following completion of the tender offer, Shiseido acquired the remaining outstanding shares of Bare Escentuals common stock for US$18.20 per share through a second-step merger. Bare Escentuals Inc will operate as a separate division of Shiseido Co Ltd, while offering an expanded presence in the North American and European marketplace. The transaction was approved by the Boards of Directors of both companies by unanimous vote of those directors present and voting. The tender offer for Bare Escentuals Inc’s outstanding common shares was completed on 9 March 2010. Shiseido Co Ltd also announced a subsequent offering period for all remaining shares of Bare Escentuals Inc. The subsequent offering closed on 14 March 2010. Pursuant to the Chinese takeover regulations, Diageo Highlands Holdings BV, a subsidiary of British alcoholic drinks producer, Diageo Plc, made a takeover offer to acquire the remaining 60.3% majority stake of Shanghai-listed Chinese wine producer, Sichuan Swellfun Co Ltd, for a maximum of RMB6.3b (US$925.5m) in cash for RMB21.45 (US$3.1) per share. In a previous agreement which triggered the mandatory takeover, Diageo agreed to acquire an additional 4% of Sichuan Chengdu Quanxing Group Co Ltd from Chengdu Yingsheng Investment Holding Co Ltd, that following completion, Diageo will become 53% interested in Sichuan Chengdu Quanxing, a company that owns 39.7% controlling stake of Sichuan Swellfun. Paul Walsh, CEO of Diageo commented the transaction provides Diageo with the platform to participate at scale and grow its market share in China’s spirits segment. Diageo intends to maintain Sichuan Swellfun’s listing on the Shanghai Stock Exchange following completion. Groupe Lactalis SA agreed in principle to acquire Puleva Food SL from Ebro Puleva SA for €630m (US$857.3m). Ebro Puleva SA reported that it expects a conÕrmation within four weeks, after conducting a due diligence. On 30 March 2010, Groupe Lactalis SA and Ebro Puleva SA signed the contract for the purchase of Puleva Food SL. The transaction remains subject to approval from the European Competition Authorities. Based in Granada, Spain, Puleva Food SL produces dairy products. Coca-Cola Enterprises Inc agreed to acquire the business and assets of The Coca-Cola Co’s bottling operations in Norway and Sweden for NOK4.7b (US$822m). As part of the transaction, Coca-Cola Enterprises Inc also obtains an option to acquire an 83% stake in The Coca-Cola Co’s German bottling operations. The deal will allow The Coca-Cola Co to become a strategic bottling partner for the company in Western Europe. Concurrent with the transaction, The Coca-Cola Co will acquire a majority stake in Coca-Cola Enterprises Inc in a deal worth about US$13b. Subsequent to the transactions, a new entity, which will retain the name Coca-Cola Enterprises Inc, will be created through a split-off that will hold the European businesses. Coca-Cola Enterprises Inc’s public shareholders will enhance each existing company share for a share in the new entity and will hold 100% stake in the new entity. Both transactions are expected to close in the fourth quarter of 2010. The Perrigo Co signed a deÕnitive agreement to acquire PBM Holdings Inc for US$808m in cash. The acquisition of PBM adds adjacent product category to Perrigo’s diverse over-the-counter product portfolio. Perrigo intends to fund the acquisition using approximately US$175m cash on hand, US$300m available under its existing debt, and new debt Õnancing. The transaction is expected to close on 31 December 2010, and is subject to regulatory approval. PBM Holdings Inc, located in Virginia, manufactures, distributes, and sells pharmaceutical, nutritional, and consumer food products. Diamond Foods Inc acquired Kettle Foods Inc from Lion Capital LLP for US$615m in cash. Lion Capital LLP had acquired the business in 2006. The transaction will double the size of Diamond’s snack business adding more than US$250m in revenues. ConÔdence is returning Analysis of transactions in the global consumer products sector 21 Contacts Region Contact Email/telephone Global/EMEIA David Murray [email protected] +44 (0)158 264 3248 Global Consumer Products Transactions Leader Far East Robert Partridge Transaction Advisory Services Leader Japan Michael Buxton Transaction Advisory Services Leader Oceania John Davies Oceania Consumer Products Leader North America Gregory Stemler Consumer Products Transactions Leader Latin America Jeremy Barnes [email protected] +852 2846 9973 [email protected] +81 3 5401 7100 [email protected] +61 39 288 8503 [email protected] +1 312 879 3351 Transaction Advisory Services [email protected] +1 305 415 1379 Country Contact Email/telephone Brazil Alfredo Della Savia [email protected] +55 11 2573 3788 Consumer Products Leader Russia Dmitry Khalilov Retail and Consumer Products Leader India Ajay Arora [email protected] +91 124 464 4000 Transaction Advisory Services China Tony Tsang Transaction Advisory Services Leader 22 [email protected] +7 (495) 755 9757 [email protected] +86 21 2228 2358 ConÔdence is returning Analysis of transactions in the global consumer products sector ConÔdence is returning Analysis of transactions in the global consumer products sector 23 Ernst & Young Assurance | Tax | Transactions | Advisory About Ernst & Young Ernst & Young is a global leader in assurance, tax, transaction and advisory services. Worldwide, our 144,000 people are united by our shared values and an unwavering commitment to quality. We make a difference by helping our people, our clients and our wider communities achieve their potential. Ernst & Young refers to the global organization of member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit www.ey.com. About Ernst & Young’s Transaction Advisory Services How organizations manage their capital agenda today will define their competitive position tomorrow. We work with our clients to help them make better and more informed decisions about how they strategically manage capital and transactions in a changing world. Whether you’re preserving, optimizing, raising or investing capital, Ernst & Young’s Transaction Advisory Services bring together a unique combination of skills, insight and experience to deliver tailored advice attuned to your needs — helping you drive competitive advantage and increased shareholder returns through improved decision making across all aspects of your capital agenda. © 2010 EYGM Limited. All Rights Reserved. EYG no. EN0216 In line with Ernst & Young’s commitment to minimize its impact on the environment, this document has been printed on paper with a high recycled content. This publication contains information in summary form and is therefore intended for general guidance only. It is not intended to be a substitute for detailed research or the exercise of professional judgment. Neither EYGM Limited nor any other member of the global Ernst & Young organization can accept any responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this publication. On any specific matter, reference should be made to the appropriate advisor. 1008786.indd (UK) 05/2010. Creative Services Group. ...
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