Trick or Treat? Italian Candy Maker Comes Knocking on U.S. Door
October 19 2017 - 3:30PM
Dow Jones News
By Eric Sylvers in Milan and Annie Gasparro in Chicago
Ferrero International SA, the Italian confectioner, just bit off
another piece of the U.S. candy market, and it is already thinking
about taking a much bigger bite.
Ferrero, which makes Nutella and Tic Tacs, said this week it had
agreed to buy Lemonheads and RedHots maker Ferrara Candy Co. from
private-equity owner L Catterton. It didn't disclose terms.
Ferrero, the world's fourth-largest confectioner by market
share, is also considering a bid to buy Nestlé SA's U.S. candy
business, according to people familiar with the bidding.
The business, which Nestlé put up for sale earlier this year,
includes well-known candy bar brands such as Butterfinger and Baby
Ruth and had sales of $922 million last year.
The unit has attracted a number of bids, valuing it between $2
billion and $2.5 billion, according to a person familiar with the
process. Apart from Ferrero, Hershey Co. and private-equity firms
are interested, according to people familiar with the matter.
Brynwood Partners is expected to be among those, according to one
of these people. Brynwood has previously bought other U.S. candy
brands from Nestlé, including Turtles chocolates and Flips
chocolate-covered pretzels.
Mars Inc., Hershey, Mondelez International Inc. and Nestlé are
the top four confectioners in the U.S. by market share,
respectively, according to Euromonitor. Ferrero is currently No. 6
in the U.S. Combined with Ferrara and Nestlé's business, it would
move up to No. 3, though still far behind Mars and Hershey.
Mondelez sought to boost its own U.S. standing when it
unsuccessfully bid for Hershey last year. It is unclear if Mondelez
or Mars are interested in the Nestlé brands.
On Thursday, officials at Nestlé said it expected the sale of
the unit, which went on the block in June, to be wrapped up by the
end of the year.
A move on Nestlé's U.S. business would be the biggest in a
series of much smaller acquisitions by Ferrero, a private,
family-controlled firm with about $12 billion in revenue last year.
Earlier this year, it bought Fannie May Confections Brands. Two
years ago, it snapped up U.K. chocolate maker Thornton PLC.
Founded in 1946 in the small northern Italian town of Alba,
Ferrero has followed a dual-track strategy: It has aggressively
pursued acquisitions, while also trying to stoke organic growth
with new products.
Last month, the company introduced in Italy a cookie version of
its Kinder Surprise egg -- a thin chocolate egg with a small
plastic toy inside. It is sold across Europe, but not in the U.S.
Earlier this year, it began testing a Tic Tac chewing gum in its
home market. If successful, Ferrero will roll out the two products
in other countries, including the U.S., according to a person
familiar with the plans.
Ferrara, the U.S. company, traces its roots back to 1908, when
it opened as a pastry shop in Chicago's Little Italy neighborhood.
It went on to expand into hard candies, including candy-coated
almonds, Lemonheads, RedHots and Atomic FireBalls. In 2012, after
the founder's son died, Ferrara merged with Farley's & Sathers
Candy Co., owned by L Catterton.
L Catterton expanded the company's profitability and revenue by
investing in new manufacturing equipment, advertising and new
products, like chewy Lemonheads and organic gummy bears. Executives
previously said they planned to expand annual sales to $2 billion
by 2020 from around $1 billion currently.
Last year, L Catterton considered taking Ferrara public and
shopped it around to potential buyers, but it didn't reach a deal,
according to a person familiar with the company.
--Ben Dummett contributed to this article.
Write to Eric Sylvers at eric.sylvers@wsj.com and Annie Gasparro
at annie.gasparro@wsj.com
(END) Dow Jones Newswires
October 19, 2017 15:15 ET (19:15 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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