Report: Mondelez close to buying Arnott's for $2.5B
- Following the three-week window for final bids on Campbell Soup's Australia-based Arnott's and Danish butter-cookie producer Kelsen Group last week, an Australian news source reported that Mondelez is now the sole bidder negotiating a final price in the sale.
- According to Bloomberg, which cited sources familiar with the deal, the price tag is going to be in the ballpark of $2.5 billion.
- Other groups that were reportedly in the running for the brands included Ferrero and a consortium backed by investment firm KKR & Co.
This acquisition of Campbell Soup’s international cookie brands would be Mondelez’s latest foray into cookie M&A. Last year, the international snacking giant acquired Tate's Bake Shop, a brand best known for its premium bagged chocolate chip cookies, for $500 million. As Mondelez searches for sustained growth to combat consumers' exodus from the center aisles, it has turned to sweetening up its portfolio with snack brands that have not only shown sustained growth but also tap into consumers’ insatiable need for an occasional indulgence.
When Tate’s was purchased last May, the brand's sales had quadrupled during the past five years. Likewise, Arnott’s is a growing brand, as evidenced by Campbell’s latest earnings report. Sales in Campbell’s global biscuits and snacks division grew from $708 million in the first quarter of 2018 to $1.24 billion in the first quarter of 2019. Arnott’s also happens to be the largest biscuits player in Australia, according to The Australian Financial Review. With $737 million in annual sales, it sells more than six times the next biggest competitor, Mondelez.
So it makes sense that this American company wants to take over its biggest competitor in the Asia Pacific region — and is willing to pay big money to do it. What was originally rumored to be a $3 billion sale has reportedly settled down to $2.5 billion as Mondelez works through advanced negotiations.
If Mondelez controlled this brand, not only would it be dominant in the Australia biscuit market, but they would have access to another international brand that they could introduce into other global markets where they have a foothold. The snacking giant has already taken this route with LU, a French cookie brand purchased from Danone in 2007 by Kraft, which eventually spun off Mondelez, and is now in every US grocery store. Similarly, belVita, which was part of the same Danone acquisition, was a power brand in Europe before Mondelez introduced the breakfast bar brand stateside. BelVita is now a key performer in Mondelez’s overall earnings. It would not be surprising if Mondelez took a similar approach with Arnott’s or the Kelsen Group’s Royal Dansk butter cookies and Denmark’s Kjeldsens and brought these growing brands to the United States.
As Mondelez searches to increase its dominance as a global snacking powerhouse, it is relying more heavily on biscuits. In the fourth quarter of 2018, organic net revenues grew for chocolates, biscuits and candy and gum in 2018. Biscuits led the way with net revenues of $11.2 billion, representing a bump of 2.8%.
Furthermore, "global" seems to be the keyword in the company's future success strategy. Europe is the snacking giant's biggest market, with nearly $2.8 billion in Q4 net revenue. The North American region is a distant second, with $1.8 in net revenue for the same period. According to the same earnings report, the company saw 6.5% growth in emerging markets like Asia, where it could deepen its foothold with the purchase of Arnott’s.
Still, not all that glitters is gold. Although things are looking up right now for Mondelez, there is still a risk that this deal falls through. There could be disagreement about the price, or one of the private equity firms that had its eye on the Campbell’s companies could swoop in at the last minute and offer the soup giant terms that it could not refuse. However, with its size and expertise, Mondelez has one advantage over these firms: the food company can leverage its distribution network and R&D resources to further scale the brand and get its products in front of more consumers. Still, nothing is final until its signed, sealed, and made public in a statement.