Hershey to buy Godrej Beverages

AMERICA’S largest chocolate and confectionery-maker Hershey is acquiring majority stake in the food and beverage business of the Godrej group. Hershey is acquiring 51% equity stake in Godrej Beverages & Foods for Rs 238 crore or about $54 million. This would mark the exit of financial investor IL&FS from the venture while the holdings of Godrej group and that of an individual investor A Mahendran would come down. The deal would value Godrej Beverages & Food at Rs 466 crore. EThad first reported on Hershey close to picking a substantial equity stake in Godrej Beverages & Food in its edition dated January 26. According to a source close to the transaction, $5-billion Hershey would be picking the majority stake through multiple transactions. This would include acquiring the 40% equity held by IL&FS, acquisition of the convertible preference shares held by IL&FS, Godrej Industries and Mr Mahendran as also subscription to fresh issue of capital in the company. At the same time Hershey would license Godrej Beverages & Food some of its trademark rights for a lump sum payment of about $2 million in addition to royalty payments of 5% for domestic sales and 8% for exports. Post acquisition, Hershey would hold 51% equity while Godrej Industries would hold 43% stake with the remaining 6% to be held by A Mahendran, a senior executive with the Godrej group. The deal would value the equity stake of Godrej Industries, a listed arm of the Godrej group, at Rs 200 crore. Godrej Beverages & Food represents the foods and beverages business of the Mumbai-based Godrej group. It was formed last year when Godrej Industries transferred its foods division to another group company Godrej Tea. The combined entity was renamed as Godrej Beverages & Food Ltd. With a turnover of around Rs 400 crore, the company is engaged in categories such as tea, edible oils, health drinks including soymilk, tomato puree, fruit drinks and bakery fats. Its brand portfolio includes Jumpin range of fruit drinks, Xs fruit juices, Sofit Soymilk, Sofit Ready to Eat Cereals, Godrej Tea, Godrej Vanaspati, Cooklite Sunflower Oil and Godrej Tomato Puree. However, the main attraction for Hershey would be the confectionery business where at one shot it would become the largest player in the domestic confectionery market. Godrej Beverages & Food had acquired Nutrine, the largest domestic confectionery brand, along with its assets in June last year in a deal worth Rs 250 crore from the South based Reddy family. This deal brought under its fold strong confectionery sub-brands such as Maha-Lacto, Koko Naka, Milk Eclairs, Honey Fab, Aam Ras and Gulkand. Nutrine is a 100% subsidiary of Godrej Beverages & Food. While this deal would mean Godrej group losing control of their foods business, for Hershey — which has in the past also considered a possible alliance with Amul — it would mark a significant entry into the Indian market. Hershey retails brands such as Hershey’s, Reese’s, Hershey’s Kisses and Ice Breakers. Apart from confectionery products, it is engaged in product categories like baking ingredients, chocolate drink mixes, peanut butter, dessert toppings and beverages. Hershey had only recently formed a manufacturing joint venture with Korean confectionery major Lotte to produce Hershey and Lotte products in China for the Chinese market. With the Godrej deal it would create a significant business in the two largest emerging markets.The USbased Hershey had recently also announced a major restructuring programme for its production facilities and supply chain over the next three years. This included cutting the number of production facilities by one-third to boost capacity utilisation, outsource production of low value-added items and construct a flexible, cost-effective production facility in Mexico to meet current and emerging marketplace needs.

Courtesy: EconomicTimes
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