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Pet food and confectionery giant Mars has announced it will buy ailing UK chocolate business Hotel Chocolat in a deal worth about £534mn, with a payday of about £280mn for the latter’s founders.
The cash offer, which values the company at about £534mn on a fully diluted basis, represents a sizeable premium on the chocolatier’s share price on Wednesday and comes after Hotel Chocolat made a loss this year, amid sinking demand and the fallout from botched expansion plans.
Mars’s offer values the Aim-listed cocoa manufacturer at a premium of 169.8 per cent to Hotel Chocolat’s share price of 139p at the close of business on Wednesday, the companies said.
The chocolatier, which was founded as an online retailer in 2004, swung to a loss in the year to July, falling from a pre-tax profit of £21.7mn to a loss of £800,000. It blamed inflationary pressures, weak consumer sentiment and the cost of restructuring efforts following an abortive international expansion in the US and Japan.
The stock has lost about a third of its value since it listed on the junior London stock market in 2016.
Hotel Chocolat said in a statement on Thursday that it considered the terms of the deal “to be fair and reasonable” and recommended shareholders back the 375p-a-share offer. It added that Mars’s global supply chain and commercial relationships would help the company get the expansion of its business abroad back on track.
Andrew Clarke, global president at Mars Snacking, said the valuation was based on “where we see the long-term potential” for Hotel Chocolat.
Analysts at Peel Hunt described it as “a knockout bid”.
“As a multiple current of forecasts or even of peak earnings, this looks like a decent bid for Hotel Chocolat,” they said.
The UK company was founded by entrepreneurs Angus Thirlwell and Peter Harris to sell premium chocolate with higher cocoa content and less sugar than incumbents. Together they own 54.2 per cent of the company.
Thirlwell, who is staying on as chief executive, said he was reinvesting 80 per cent of his shareholding “in the future of the business alongside Mars” and Harris would reinvest “a fair proportion” in the business.
He defended his decision to sell out to a confectionery giant whose products he had vowed to disrupt. “Looking at the Mars portfolio, it’s very clear that the brand values behind each of those brands are lived and there’s a place with a consumer-centric approach for confectionery,” he said.
Clarke ruled out changing Hotel Chocolat’s recipes.
Hotel Chocolat last year announced the closure of its US stores after heavy losses and wrote off its investment in a Japanese joint venture. The company has since agreed a new joint venture in Japan.
“Over the last year or two, it has become clear to the Hotel Chocolat directors that achieving this [international growth] potential will require substantial investment and time,” the company said in a stock market update on Thursday.
“We know our brand resonates with consumers overseas, but operational supply chain challenges have held us back,” said Thirlwell. “By partnering with Mars, we can grow our international presence much more quickly using their skills, expertise and capabilities.”
For Mars, the acquisition represents an opportunity to move into the higher-value premium chocolate category. Nestlé made a similar move with its acquisition of Brazilian premium chocolate maker Grupo CRM earlier this year.
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