Hotel Chocolat has agreed a £534m sale to confectionary giant Mars as its current share price does not reflect the “value and potential” of the group.
Hotel Chocolat and Mars have agreed a 375p per share deal, which represents a premium of 170% on its share price of 139p at the close of business last night.
The cash offer is also almost triple the average price of 127p for the 60-day period ended 15 November and 144% up on its 154p average price over the past year.
Hotel Chocolat shares were trading above 500p at the start of 2022, but its share price crashed amid “disappointing financial results” that left the group facing a strategic reset and a restructuring of its business.
The group said this morning that while it is making good progress implementing a three year plan to re-shape its future business, the recent share price “does not accurately reflect the underlying value and potential of Hotel Chocolat”.
“While this growth potential has previously been recognised by the market and reflected in the Hotel Chocolat share price, over the last year or two it has become clear to the Hotel Chocolat directors that achieving this potential will require substantial investment and time,” the group said.
“In particular, the need for, and cost of, the recent reorganisation of Hotel Chocolat’s initial expansion into the US and Japan illustrates the scale of the challenge to grow the Hotel Chocolat brand internationally.”
Therefore the group requires “a level of investment that is likely to exceed that available from its own resources”.
“If Hotel Chocolat continues as a listed company, it is likely to be difficult in the short to medium term for Hotel Chocolat to raise the significant equity funding required to expand the business internationally in a way that captures more of the potential value for shareholders,” it said.
Meanwhile Mars highlighted Hotel Chocolat’s “impressive credentials as a contemporary, premium brand with a differentiated product offering, world-class product quality and strong direct-to-consumer capabilities”.
It said the two companies are culturally aligned and Mars is well-positioned to support Hotel Chocolat’s next growth phase given its international footprint, global supply chain and extensive commercial relationships.
It said the deal could provide the Hotel Chocolat brand with an enhanced platform for growth in the UK and potentially in new geographies.
Mars also said the acquisition would further strengthen its commitment to the UK market where it has operated since 1932 and today employs 10k people.
Shareholders will vote on the deal, which is expected to complete in the first quarter.
Angus Thirlwell, CEO of Hotel Chocolat said: “Hotel Chocolat’s brand destiny is to become a leading premium chocolate brand in major markets through reinventing chocolate for people and nature. In Mars we have found a true meeting of minds - in strong cultural values, bold strategy and true long-termism.
“We know our brand resonates with consumers overseas, but operational supply chain challenges have held us back. By partnering with Mars, we can grow our international presence much more quickly using their skills, expertise and capabilities.
“The pillars on which we have built the Hotel Chocolat brand - originality, authenticity and ethical trading, is precisely what brought Hotel Chocolat and Mars together and our intention is to strengthen and invest behind these. I’m excited about the future of the business and in Mars we have found an excellent long-term steward of the Hotel Chocolat brand and everything we stand for.”
Andrew Clarke, global president of Mars Snacking, said: “We have long admired the fantastic business that Angus, Peter and the Hotel Chocolat team have created. Hotel Chocolat is a differentiated and much-loved brand, with an impressive product offering and a deep commitment to its values of originality, authenticity and ethical trading.
“We are confident that Mars will be an excellent long-term home for Hotel Chocolat, providing a like-minded, entrepreneurial and purpose-led environment in which to maximise the potential of the Hotel Chocolat brand which is already so beloved by consumers.”
Premier Foods has posted double-digit sales and profit growth in the first half of its financial year as it maintained margins despite increased costs.
Headline sales, which excludes Knighton Foods, grew by 19.2% to £484.4m in the first half of the year to 30 September.
The group’s branded revenues were up 15.8%, with branded revenue growth slowing to 14.3% in the second quarter.
Total headline grocery sales were up 24.6% in the first half, while its sweet treats division saw revenue growth of 5.4%.
Premier noted that grocery volume trends improved in the second quarter, as elasticity effects of price increases dissipated.
Meanwhile, greater promotional investment across a range of popular products in the second half is expected to further underpin these volume trends.
Trading profit increased by 19% to £67.5m as it held margin in line with its prior year at 13.9%.
Adjusted profit before tax increased by 21.2% to £56.9m.
Premier said it had made a “good” start to its third quarter, as it continues to implement its comprehensive programme of brand investment, new product launches and instore execution.
Given this momentum, the group now expects trading profit this financial year to be in the region of 10% ahead of last year.
It also said that the full resolution of the pension schemes is expected within three years and would open up a range of “value enhancing opportunities to further accelerate shareholder value over the medium term”.
CEO Alex Whitehouse commented: “We’ve had a really good start to the year, making strong progress against all our strategic pillars. We delivered branded revenue growth of nearly 16%, again maintained our Trading profit margins and we continue to grow faster than our markets, gaining 113 basis points of share in our Grocery categories. This performance once again demonstrates the power of our branded growth model and the capabilities of our team.
“We know how challenging the past year has been for many consumers and so it’s good to see the rate of input cost inflation falling. This has now given us the opportunity to lower promotional prices across a number of our major branded products such as Batchelors Super Noodles and Mr Kipling Slices.”
“We’re very pleased to have recently acquired the vibrant breakfast brand FUEL10K, providing us with the ideal platform to accelerate our expansion into breakfast and deploy our branded growth model, while The Spice Tailor is on track this year to deliver returns ahead of our original acquisition plan. With a strong first half behind us, a good start to quarter 3 and exciting plans for the rest of the year, we are again raising our Trading profit expectations for FY23/24, following our previous upgrade earlier this year.”
Elsewhere this morning, pub group Young’s has agreed a £162m deal to acquire fellow listed pub group City Pubs.
The cash and shares deal will see City Pubs shareholders receive 108.75p per share and 0.032658 new Young’s shares, worth 145p per share overall.
That represents a premium of 46% to the closing price of 99p per City Pubs share yesterday.
Simon Dodd the CEO of Young’s said: We believe that City Pubs is an excellent fit with Young’s and the combination of the two businesses represents a compelling opportunity for all stakeholders. It will allow us to expand our estate through the addition of a complementary, high-quality pub and bedroom portfolio, with the potential for the benefit of significant operational synergies to be realised by both sets of shareholders, through the partial share offer.”
Clive Watson the executive chairman of City Pubs said: Mindful of the uncertain economic climate, high interest rates and inflation in particular, and our plans for long term growth as an independent company, initial approaches were rejected.
“However, following careful consideration, we believe the transaction is in the best interests of City Pubs shareholders with the ability to realise 75% of the equity in cash at a material premium to the current share price together with a stake in the future upside. The Board believes the Transaction significantly accelerates the value that could be realised in the short term by City Pubs if it were to remain independent.”
On the markets this morning, the FTSE 100 is fractionally down at 7,483.4pts.
Hotel Chocolat shares have jumped 162.9% to 365.5p.
Premier Foods is up 2.2% to 133.9p on its first half results.
Other risers include Naked Wines, up 3% to 32.3p and Tesco, up 2% to 278.9p.
Fallers include Ocado, down 4.2% to 571.4p, B&M European Value Retail, down 2.1% to 539p and WH Smith, down 1.3% to 1,335p.
Yesterday in the City
The FTSE 100 ended yesterday up 0.6% at 7,486.9pts after the City was boosted by a sharp drop in inflation and hopes of interest rate cuts in 2024.
Risers yesterday included Nichols, up 6.5% to 1,010p, Ocado, up 5.6% to 596.2p, Naked Wines, up 4.5% to 31.4p, Hilton Food Group, up 4.5% to 720p, THG, up 3.2% to 76.6p, Greencore, up 3.2% to 99.6p, Just Eat Takeaway.com, up 3% to 1,290p and McBride, up 2.9% to 50.4p.
The day’s fallers included PZ Cussons, down 2.1% to 137p, Tesco, down 1.8% to 273.5p, Diageo, down 1.8% to 2,845.5p, B&M European Value Retail, down 1.3% to 550.4p, Sainsbury’s, down 1.2% to 265.6p and FeverTree, down 1.2% to 1,092p.