Lindt agrees to buy Russell Stover in bid for bigger U.S. bite

Employees check boxes of Lindt chocolates after they are packaged by robots inside the Lindt & Spruengli AG factory in Kilchberg, near Zurich, Switzerland, on Tuesday, Aug. 2, 2011. Lindt & Spruengli AG are the world's largest maker of premium chocolate. Photographer: Gianluca Colla/Bloomberg
Employees check boxes of Lindt chocolates after they are packaged by robots inside the Lindt & Spruengli AG factory in Kilchberg, near Zurich, Switzerland, on Tuesday, Aug. 2, 2011. Lindt & Spruengli AG are the world's largest maker of premium chocolate. Photographer: Gianluca Colla/Bloomberg

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

The purchase unites Lindt's golden foil-wrapped Easter bunnies 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 increase 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. 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.

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 Saturday 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, Mo.-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 email.

The price is probably more than 20 times earnings before interest, tax, depreciation and amortization, which "is not a bargain," Michael Romer, an analyst at J. Safra Sarasin, wrote in a note to investors.

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.

Information for this article was contributed by Jan Schwalbe of Bloomberg News.

Business on 07/15/2014

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