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Lindt Buys Russell Stover in Company’s Biggest Purchase

By Corinne Gretler and Jan Schwalbe
July 14, 2014 7:40 AM EDT 1 Comments
A employee checks Lindt chocolates for defects on the production line at the Lindt & Spruengli AG factory in Kilchberg. The acquisition of Russell Stover Candies Inc.  will give Lindt 7.9 percent of the North American chocolate market, according to Bloomberg Industries data, propelling it past Nestle SA.
Photographer: Gianluca Colla/Bloomberg
A employee checks Lindt chocolates for defects on the production line at the Lindt & Spruengli AG factory in Kilchberg. The acquisition of Russell Stover Candies Inc. will give Lindt 7.9 percent of the North American chocolate market, according to Bloomberg Industries data, propelling it past Nestle SA.

Lindt & Spruengli AG (LISN), the world’s largest producer of premium chocolate, agreed to acquire Russell Stover Candies Inc. to become the third-biggest chocolate producer in North America.

The purchase brings Lindt’s golden foil-wrapped Easter bunnies together with a brand whose standing in the U.S. candy market was elevated by its appearance in the 1994 movie Forrest Gump. The price wasn’t disclosed though Kilchberg, Switzerland-based Lindt said the acquisition is the biggest in its history.

Russell Stover, the largest U.S. maker of boxed chocolate, has annual sales of about $500 million and will boost revenue in North America beyond $1.5 billion in 2015, Lindt said. The acquisition of the closely held company will give Lindt 7.9 percent of the North American chocolate market, according to Bloomberg Industries data, propelling it past Nestle SA. (NESN) The company will be a distant third behind Hershey Co. and Mars Inc., which together control more than half of the market.

“The takeover certainly makes sense for Lindt, as it really strengthens their position in the U.S.,” Jean-Philippe Bertschy, an analyst at Bank Vontobel AG, said by phone. Russell Stover’s presence in the central U.S. will complement Lindt’s strength on the East and West Coasts, he said.

Lindt shares rose as much as 1.8 percent to 55,735 Swiss francs in Zurich trading, the highest price since at least October 1989. The stock was up 1.5 percent at 1:30 p.m., valuing the company at about 12 billion francs ($13.5 billion).

‘Positive Contribution’

The acquisition will be funded through net cash resources and bank loans, Lindt said. It will make a “strong positive contribution” to earnings per share from 2015.

Russell Stover is being acquired from the family of Lou Ward, who bought the company in 1960. The Financial Times reported July 12 that a purchase price of $1.4 billion was under discussion. Lindt was advised by Credit Suisse Group AG.

Founded by Clara and Russell Stover from their Denver home in 1923, the Kansas City, Missouri-based company sells products from almost 40 company-owned shops throughout the U.S. Its chocolates can also be found at more than 70,000 drugstores, card and gift shops, grocery outlets and department stores.

In addition to its eponymous brand, the company also makes Whitman’s and Pangburn’s candies.

The transaction gives Lindt “a ready-made brand in the non-premium U.S. chocolate market and may help to offset reliance on European markets,” Jon Copstake, an analyst at The Economist Intelligence Unit, said by e-mail.

The price is probably more than 20 times earnings before interest, tax, depreciation and amortization, which “is not a bargain” compared with Lindt’s ratio of enterprise value to Ebitda of 16.6 times, Michael Romer, an analyst at J. Safra Sarasin, wrote in a note to investors.

Staying Independent

Lindt may be able to increase its share of the U.S. chocolate market to 10 percent within the next three years, Chief Executive Officer Ernst Tanner said in a phone interview.

The Russell Stover purchase will produce similar benefits to when the Swiss company acquired California-based Ghirardelli Chocolate Co. in 1998, the CEO said.

“We proved with the integration of Ghirardelli back in 1998 that we are able to integrate a U.S. company,” Tanner said. “The Ward family acknowledged that and that might have played an important part.”

Lindt wants to remain an independent Swiss company, the CEO said. “We are better off as an independent company -- in Switzerland, Europe and also in the U.S.,” he said.

Separately, Lindt said first-half sales rose 6 percent to 1.2 billion Swiss francs, boosted by the addition of new products. The company maintained its forecast for growth of 6 to 8 percent for the year on a so-called organic basis.

To contact the reporters on this story: Paul Jarvis in London at pjarvis@bloomberg.net; Corinne Gretler in Zurich at cgretler1@bloomberg.net

To contact the editors responsible for this story: Celeste Perri at cperri@bloomberg.net Thomas Mulier, John Bowker

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