Mondelez International; market cap as of 11/03/2016: $66.46bn
Introduction
Lavazza, the leading company in the Italian coffee market, has agreed to buy the French brand Carte Noire for €700m in order to pursue its international expansion. This deal is a result of the EU regulators’ decision according to which the previous owner of Carte Noire – Mondelez International – was forced to sell its brand for antitrust reasons.
After the completion of this merger Lavazza will become the leader in the French coffee market.
About Luigi Lavazza S.p.A.
Luigi Lavazza S.p.A. is an historical Italian coffee producer which focusses on two line of business:
- Roasting and packaging ground coffee, creating capsules and other coffee products.
- Producing coffee machines.
Lavazza can be considered a vertically integrated company as it owns production plants in Italy, Brazil and India as well as several distribution channels for its products.
In terms of geographical presence, Lavazza is the leader of the Italian coffee retail market where it holds 44.9% of the market share. The brand is also well-known internationally. It operates in 90 countries worldwide from which it derives over 55% (€1.4bn in 2015) of its total revenues.
In the last years Lavazza has been investing many resources in order to further grow in foreign markets. In particular, the company identifies Germany, France and the UK as the principal markets in which it wants to grow.
Lavazza invested more than €1bn in the last 12 months. During 2015, it acquired Merrild, a leader coffee producer in the Nordics. Furthermore, the Italian company also decided to purchase the distribution network of their coffee in Australia, a market in which it already has an important market share
The company is targeting 70% of revenues coming from foreign countries within few years, and the goal seems not to be out of reach. Indeed, in 2015 Lavazza experienced a huge sales growth in key countries such as US, Germany and UK with a +20%, +11% and +19% YoY growth respectively. Moreover during the last five years the group achieved a CAGR of 5% even though the industry was not performing very well.
About Carte Noire
Carte Noire is the leader in the French retail market and it sells ground coffee, capsules and expresso beans.
The company is owned by Mondelez International, the American food industry firm famous for its Oreo, Mikado and Milka brands. Carte Noire is the brand under which Mondelez commercializes its coffee products in France, and the success of this brand is largely due to their Nespresso compatibles capsules.
While Lavazza is completely family-owned, like the majority of medium sized Italian firms, Carte Noire is part of a listed multinational company and is now being spun off as a consequence of a previous merger between the coffee businesses of Mondelez International and D.E Master Blenders. Indeed, the merger would have led to the creation of a company controlling 60% of the French coffee market thus heavily influencing the level of competition.
Deal Structure
Lavazza S.p.A. agreed to pay €700m to acquire Carte Noir in an all cash deal. Of the total amount paid, €400m will be funded by Lavazza through bank financing while the remaining €300m will be paid using existing cash reserves. A pool of banks composed by Intesa San Paolo, Bnl-BNP Paribas, Radobank and Unicredit have acreated a club deal in order to finance the transaction.
Deal Rationale
Lavazza S.p.A. is well positioned in the market and it is trying to diversify its presence in the world in order to become a major player in the industry.
Lavazza CEO Antonio Baravalle stated that Carte Noire will well complement Lavazza’s French division as the former is showing higher positioning in the retail coffee sector, while the latter is performing better in the “away-from-home” market in France.
The deal will create a group with combined revenues of €1.7bn and further expected sales growth to €2bn by 2020. By acquiring Carte Noire, which currently has a 20% market share in France, Lavazza will further strengthen its position in the French market, ultimately holding over 50% of the market share. As a consequence, the Italian coffee company is expected to generate about a fifth of its total revenues in France this year.
Finally, a fundamental part in the deal will be played by Carte Noire’s main plant based in Laverune, which is also on the list for sale to Lavazza. The plant will play a key role for increasing the production of the combined company. As a result, Lavazza is planning further investments in Laverune, expanding the facility and increasing the total number of employees in France to 500.
Markets Reactions
Markets are taking into consideration the opportunity of a partial IPO for Lavazza that will unlock many opportunities in terms of investments and consequently growth opportunities for the group. However, the CEO Antonio Baravalle said that the company is not considering an IPO at the moment since shareholders want to keep their independence.
Based on their financial results, business plan and the recent acquisitions it is obvious that Lavazza S.p.A. is becoming a more influential player in the industry, with solid balance sheet and a great potential to grow organically by exploiting the Italian know-how while using their highly recognised brand. Even though there may not exist an immediate need for an IPO as Lavazza is currently showing strong growth, in the long run going public may be a sound decision in order to outperform competitors.
Financial Advisors
JP Morgan acted as the financial advisor for Lavazza, while Rothschild assisted it on the club-deal with the banks for financing the transaction. On the other side, Mondelez International was advised by Lazard.
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