| LONDON/SHANGHAI/NEW YORK
LONDON/SHANGHAI/NEW YORK Post Holdings (POST.N) is buying leading British breakfast cereal brand Weetabix from China's Bright Food Group Co Ltd [SHMNGA.UL] for 1.4 billion pounds ($1.8 billion), giving the U.S.-focused company a European base on which to build.
The combination will help Post's existing brands, which include Honey Bunches of Oats and Grape-Nuts, to expand overseas, while allowing for greater distribution of Weetabix and its Barbara's brand in North America, the St.Louis-based company said on Tuesday.
The acquisition of Weetabix's manufacturing and distribution assets in Europe should also allow Post to more easily digest other overseas businesses that might become available, in cereal and beyond, Chief Executive Rob Vitale said.
"What this does is allow us to look at a broader array of opportunities," Vitale told analysts, noting that Post regularly looks at several M&A opportunities at the same time.
The sale comes just five years after Chinese state-owned Bright Food took control of Weetabix in a deal that valued it at 1.2 billion pounds at the time of a major overseas push stretching from Australia to Israel.
The brand has struggled to grow significantly since as cold cereals in Western markets face more competition from breakfast bars and Greek yogurt, and consumers grow more concerned about how much sugar is in what they eat.
Vitale said Weetabix had 2016 revenue of 410 million pounds, which was not that much higher than in 2015. Looking ahead, he said Weetabix's revenue would remain flat, with earnings being boosted by cost-savings from combining the businesses.
SOME LIKE IT HOT
In China, which had been central to Bright Food's purchase, retail sales of cold cereal have nearly doubled over the past five years, but it remains a relatively small category, as most locals prefer hot breakfasts.
"It's probably going to be a much better fit with Post," said Liberum analyst Robert Waldschmidt.
Post has agreed in principle to establish a joint venture with Bright Food and Baring to manage the Weetabix China operations, which remain a very small part of the business.
The latest sale price, 1.4 billion pounds, is 11.7 times the 120 million pounds of adjusted annual EBITDA (earnings before interest, tax, depreciation and amortization) that Post said Weetabix will contribute before cost savings. It estimates those savings to reach 20 million pounds per year by the third full fiscal year after the deal is completed.
Vitale said the multiple was higher than its past deals, but said it was justified by Weetabix's strong market share, future expansion opportunities, Post's ability to fund it in cash and the favorable tax environment in Britain.
Still, Post shares were down 2 percent in early trade in New York, underperforming the S&P 500 index .SPX, which was broadly flat.
SHOPPING FOR FOOD BRANDS
For Bright Food, which makes dairy products, candy and other foodstuffs, the sale does not mean an end to its international ambitions, Shanghai-based Bright spokesman Pan Jianjun said.
"This is a part of our internationalization strategy. Selling assets enables us to better expand. Going forward Bright will stick to our overseas push," he said.
The sale would give Bright extra firepower should it want to bid for any other food assets currently on the block.
The global packaged food industry is in the midst of a wave of dealmaking, with giants Unilever (ULVR.L) (UNc.AS) and Reckitt Benckiser (RB.L) both selling multi-billion-dollar food assets.
Bright Food took control of Weetabix from private equity firm Lion Capital, which had held its stake for over a decade. Baring Private Equity Asia subsequently bought Lion's remaining stake in 2015.
Post said the deal will immediately add to its adjusted operating profit margins and its free cash flow, excluding one-time transaction expenses. It expects to fund the deal with cash on hand and borrowings under its existing credit facility.
Post also reported net sales for the second quarter of $1.25 billion, a net loss of $4 million and adjusted EBITDA of $228 million. It affirmed its 2017 adjusted EBITDA of $920 million to $950 million, excluding any contribution from Weetabix.
Post was advised by Barclays, Rabobank, Credit Suisse and Nomura. Reuters reported exclusively in December that Bright had hired Goldman Sachs to advise it on a sale.
(Additional reporting by Martinne Geller in London and Parikshit Mishra in Bengaluru; Editing by Stephen Coates and Keith Weir)