Dec 13, 2012

Singapore - Van Houten takes billion-dollar bite out of Petra Foods

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Chocolate company Petra Foods has agreed to sell its entire cocoa ingredients division for US$950 million, leaving it with only its branded consumer goods unit.

The move will slice off a large profit contributor although analysts remained upbeat on the firm's prospects while shareholders reacted by sending Petra's shares soaring more than 20 per cent yesterday.

Zurich-based chocolate giant Barry Callebaut, which produces the Van Houten brand of cocoa drinks, is buying the cocoa ingredients business.

It will get seven Petra cocoa ingredients factories - in Malaysia, Indonesia, Thailand, Brazil, Mexico, Germany and France - and major sales offices in Singapore, the Netherlands and the United States.

Much of the net proceeds will be used to pay down Petra's debt, with the rest - about US$300 million - retained to finance growth in the branded consumer division.

Part of the proceeds may be distributed to Petra's shareholders, said a company statement yesterday. But chief executive John Chuang told a briefing yesterday that it is "still too early" to determine if a special distribution will be paid out.

Petra will enter a long-term supply agreement with Barry Callebaut to purchase cocoa ingredients to ensure there is minimal disruption to its branded consumer division.

The sale is subject to shareholders' approval but the vote is essentially a done deal. Chuang and his wife have agreed to use their 51 per cent Petra stake to vote for the sale, which needs a simple majority to pass.

Regulatory approvals - including approvals under antitrust and competition laws of the European Union and the US - are also needed.

Petra's operating profits have historically been split about 50-50 between its cocoa ingredients and consumer products divisions, although in the past two years contributions from the consumer business have accelerated.

"We made a decision that we want to focus on the consumer business," said Chuang.

The consumer division makes the SilverQueen, Ceres and Delfi brands of chocolate confectionery, which are popular in countries such as Indonesia. It also distributes third party brands across the region.

A trading halt was called for the announcement. The market gave its approval when trading resumed in the afternoon, sending Petra's shares up 56 cents or 20.4per cent to $3.31, as 2.2 millionshares changed hands.

"(This is) an unexpected move but a positive one in the long run," said OCBC Investment Research analyst Lim Siyi.

"The branded consumer division is the segment with a greater growth potential and better margins. If Petra manages it well, the decision to focus solely on the branded consumer division will pay off."

Petra's large market share in Indonesia and the Philippines has delivered annual double-digit growth for the branded consumer division.

With the growing consumer demand in these emerging countries and a conducive environment such as supportive government policies, this business can grow sufficiently to overcome the loss of the cocoa ingredients division, said Lim.

Barry Callebaut chief executive Juergen Steinemann said the purchase will make his firm the largest cocoa processor in the world. He noted that markets for cocoa powder are growing fast, especially in emerging economies.

Jonathan Kwok

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