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Issue 15

Q2 2013

Consumer Products Deals Quarterly

Activity levels miss expectationsAnalysis of transactions in Q2 2013 in the global consumer products sector

Contents

Data analysis 4

Activity levels miss expectationsDeal activity set to recover after Q2 13 declineData highlights Q2 13Top 10 deals Q2 13

Investment themes 7

This quarter’s notable themesCreating new global challengersInvesting further in known businessesUS underpinning top 10 deals

Underlying long-term trendsThe pursuit of growth opportunities and scale in emerging marketsConsolidation and portfolio optimization within developed marketsContinued pursuit of health and wellness

Deal analysis 10

Top 10 deals in Q2 13D.E Master Blenders taken privateShuanghui secures high-quality source of supplyUnilever raises its stake in Indian subsidiaryJBS claims top spot in poultryCSM transforms itself into a bio-ingredients companyPhilip Morris buys in one of last remaining minoritiesChina Huiyuan Juice secures raw material supplyCoca-Cola Hellenic shifts listing to London

Domtar’s continuing shift into HPC

WelcomeWelcome to Consumer Products Deals Quarterly, a report from EY that analyzes acquisitions and disposals in the global consumer products sector.

In recent quarters we have noted increasing interest among dealmakers in looking at potential acquisitions. The extent of the drop-off in deal activity in the second quarter is therefore surprising. Based on our own experience of a rising client workload and the deal pipeline, all the indicators were in place for a pickup in deal activity during the quarter. Wider market conditions are also broadly supportive: despite a recent rise in yields, debt market conditions are the strongest they have been since the pre-crisis 2007 peak. Equity markets remain buoyant, and the US IPO market is showing signs of improvement. Against this backdrop, we expect that the level of deal activity will improve in the second half of the year.

The quarter’s largest deal was the US$8.3b purchase of D.E Master Blenders by Joh. A. Benckiser, providing further evidence of an emerging trend toward taking companies private. The recent IPOs of Coty, another Joh. A. Benckiser company, and Pinnacle Foods illustrate the other end of the corporate transformation process — the return of businesses to the public markets once a private buyer has improved their performance out of the public spotlight.

In addition to this trend, the second quarter was notable for a number of companies investing further in businesses in which they already hold a stake and for the continuing prominence of US-based transactions in the top 10 deals.

Our analysis is based on data collected by Thomson Reuters. As usual we have drawn on the insights of our global professionals to analyze the key investment trends underlying deal activity. We hope that the data

investors who continue to focus on this sector. We are happy to provide further insight on request.

David Murray Global Consumer Products Transactions Leader [email protected]

3Consumer Products Deals Quarterly Issue 15

4 Consumer Products Deals Quarterly Issue 15

Data analysisActivity levels miss expectations

Deal activity set to recover after Q2 13 declineThere were 294 consumer products deals announced in Q2 13, a decrease of 15% compared with Q1 13, although on a year-on-year basis the decline was a more modest 5%. The decline in

volume slightly lower, to 319 deals from 323.

exaggerated by the timing of deal announcements, which could in part explain the size of the second-quarter drop. Lower levels

the growth outlook in China and other emerging markets and continuing economic weakness in Europe. The US, by contrast, is improving, which helps explain this year’s prominence of US-based transactions among the largest deals.

The decline in deal volumes was mainly in smaller corporate food transactions, which in many quarters make up the bulk of deal volume. While the top 10 deals contained four food

by Shuanghui International Holdings, the overall number of deals

volumes in the household and personal care and beverage sectors were stable.

We would not expect this decline in the number of smaller food deals to become an established trend. Firstly, food is the most fragmented of the consumer products subsectors, making it ripe for consolidation. Secondly, growing numbers of smaller transactions form the underlying foundation of the improvement in deal activity in recent quarters, and we expect this pattern to resume. Splitting deal activity into three broad size categories of less than US$1b, US$1b–US$5b and more than US$5b, we would expect the bulk of activity to continue to be in the lower two segments.

Despite the decline in activity during Q2 13, we expect a decent rebound in deal volumes in Q3 13. These more

with our expectation for a gradually improving trend in the level of deal activity.

quarterly total volume of the 12-quarter review period. Total disclosed deal value also dropped markedly, although there were three megadeals announced during the quarter.

Decrease in deal volume announced in Q2 13 compared with Q1 13

15%

Total value decreases sharply, but three megadeals announced

Disclosed deal value decreased to US$30b in Q2 13 from US$40b in Q1 13, of which the acquisition of Heinz by 3G Capital Management and Berkshire Hathaway represented US$28b. The second quarter saw three megadeals, valued at greater than US$5b each and accounting for 69% of total disclosed deal value.

Data highlights Q2 13Deal volumes decline, pushing long-term average slightly lower

Second-quarter deal volumes decreased by 15% to 294 deals from 347 in Q1 13. The four-period long-term moving average of total deal volume decreased slightly from 323 deals to 319 deals.

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Q3 10 Q4 10 Q1 11 Q2 11 Q3 11 Q4 11 Q1 12 Q2 12 Q3 12 Q4 12 Q1 13 Q2 13

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S$b)

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Food Beverages HPC Tobacco Average LTM value Average deal size

Deal values Q3 10–Q2 13Deal volumes Q3 10–Q2 13

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10050

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Num

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Tobacco HPC Beverages Food Average LTM number of deals

Q3 10

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701

Q4 10

258

76

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Q4 11

232

6952

4

Q1 12

231

66

404

Q2 12

222

6025

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Q3 12

206

65

433

Q4 12

221

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Q1 13

243

684

Q2 13

193

66 3

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Q3 11

312

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8

Q1 11

338

362

Q2 11

331

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34 49

25

32 2

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84 53

Data analysis

Data analysis — Activity levels miss expectations

Consumer Products Deals Quarterly Issue 15 5

Deals announced in Q2 13294

Decline in activity concentrated in corporate food transactions

The number of food sector deals dropped by 21% from 243 in Q1 13 to 193 in Q2 13. By comparison, deal activity in beverages and household

Q1 13. Private equity deals declined to 53 in Q2 13 from 55 in Q1 13.

D.E Master Blenders 1753 BV ($8,279)Oak Leaf BV

Hindustan Unilever Ltd. ($5,443)Unilever PLC

JBS SA

Americas prominent in top 10 deal activity

Latin America. This included deals where a US-based business was the target, in addition to transactions with a US-based acquirer.

Food and beverages dominate in the quarter’s top 10 deals

There were four food deals and three beverage deals in the top 10 largest deals in Q2 13. Of the remaining top 10 deals, two were in the household and personal care sector and, unusually, one was in the tobacco sector. Eight of the top 10 transactions featured corporate buyers, and the remaining two were private equity/long-term private investors.

The top 10 deals were in the following subsectors

Food deals

Beverage deals

HPC deals

Tobacco deals

Corporate vs. private equity deals Q3 10–Q2 13

0%

20%

40%

60%

80%

100%

Corporate PE

317

53

Q3 10

319

67

Q4 10

339

121

Q1 11

343

117

Q2 11

334

121

Q3 11

278

79

Q4 11

285

56

Q1 12

261

48

Q2 12

264

53

Q3 12

258

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Q4 12

292

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Q1 13

241

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Q2 13

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f dea

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The top 10 deals had a combined value of US$27b — 90% of total disclosed deal value

90%Top 10 deals in Q2 13

Beverages 66 68 -3% 66 60 10%Food 193 243 -21% 193 222 -13%HPC 33 32 3% 33 25 32%Tobacco 2 4 -50% 2 2 0%Total 294 347 -15% 294 309 -5%

Beverages 16 13 23% 16 6 167%Food 30 38 -21% 30 37 -19%HPC 7 4 75% 7 5 40%Tobacco 0 0 0% 0 0 0%Total 53 55 -4% 53 48 10%

Global consumer products corporate and PE transactions scorecard by subsector

Corporate deals by subsector Beverages 50 55 -9% 50 54 -7%Food 163 205 -20% 163 185 -12%HPC 26 28 -7% 26 20 30%Tobacco 2 4 -50% 2 2 0%Total 241 292 -17% 241 261 -8%

Deals announced Q2 13 Q1 13 Seq % change Q2 13 Q2 12 YoY % change

Buyer nameBuyer country Target name Target country

Disclosed value (US$m)

Announced date Deal type Sector

Cross-border or in-border

Oak Leaf BV Netherlands D.E Master Blenders 1753 BV

Netherlands $8,279 28 Mar 2013 PE Beverages In-border

Shuanghui Intl Hldg Ltd.

China United States $7,100 29 May 2013 Corporate Food Cross-border

Unilever PLC United Kingdom

Hindustan Unilever Ltd. India $5,443 30 Apr 2013 Corporate HPC Cross-border

JBS SA Brazil Marfrig Alimentos-Seara Brasil

Brazil $2,744 10 Jun 2013 Corporate Food In-border

Rhone Group LLC United States CSM NV-Bakery Supplies Netherlands $1,350 25 Mar 2013 PE Food Cross-borderPhilip Morris Intl Inc. United States Philip Morris Mexico SA

de CVMexico $700 21 May 2013 Corporate Tobacco Cross-border

China Huiyuan Juice Group Ltd.

China China Huiyuan Ind Hldg Ltd. China $660 23 May 2013 Corporate Beverages In-border

Coca-Cola HBC AG United Kingdom

Coca-Cola Hellenic Bottling Co.

Greece $370 17 May 2013 Corporate Beverages Cross-border

Mitsubishi Corp. Japan Kirin Kyowa Foods Co. Ltd. Japan $320 18 Mar 2013 Corporate Food In-borderDomtar Corporation Canada Associated Hygienic

Products United States $272 28 May 2013 Corporate HPC Cross-border



Investment themesThis quarter’s notable themes

Three themes stood out in our analysis of deals this quarter: the creation of new global challengers; companies investing further in known businesses; and US prominence, particularly in the largest deals.

Creating new global challengers The quarter provided two examples of transactions whose rationale is to create a new global challenger. Joh. A. Benckiser took Amsterdam-listed D.E Master Blenders private in a US$8.3b deal with the stated aim of challenging for the global number one position in coffee. China’s largest meat processing company, Shuanghui International Holdings, agreed to buy US pork

secure a source of supply.

The move to take D.E Master Blenders private, which follows the

Berkshire Hathaway, shows the increasing trend for private equity and long-term private investors to implement strategic change beyond the glare of public market scrutiny at even very sizable companies.

Spin-offs provide one route for investors to take businesses private. D.E Master Blenders, for example, was spun out of Sara Lee in 2012, after which the performance of the carved-out business left room for operational improvement. One area with

Recent EY research, based on a review of the working capital performance of 21 of the largest consumer products companies, found wide variations in performance. Overall, these companies analyzed still have up to US$34b tied up unnecessarily in working capital, which is equivalent to 5% of their combined sales.1

Andrew CosgroveGlobal Consumer Products Lead AnalystEY

“Private equity and private family holding companies can see the opportunity to buy businesses that are currently

improvements free from the restrictions of public ownership. The question for both outside investors and consumer products groups is not whether there will be more of this deal activity, but which assets will be next.”

1 “Cash on the table: working capital management in the consumer products industry,” EY, 2013.

2 “Pinnacle advances as IPO prices at top end of range,” Bloomberg, www.bloomberg.com, 28 March 2013.

3 “Coty shares slip takes gloss off IPO,” The Financial Times, www.ft.com, 13 June 2013.4 “Suntory unit hunts for post-IPO deals,” The Wall Street Journal, www.wsj.com, 10 July 2013.5 “Disrupt or be disrupted: creating value in the consumer products brand new order,”

EY Global Consumer Products executive survey, 2012.

While more transactions are taking companies private, consumer products businesses are also being listed on global equity markets as demand for IPOs gradually improves.

In late March, Blackstone Group sold a 26% stake in frozen food company Pinnacle Foods for US$545m, net of costs, through an initial public offering in the US that was priced at the high end of expectations.2 In June, Joh. A Benckiser sold a 19% stake in Coty, raising U$1b in the consumer products sector’s largest IPO since Lorillard Tobacco raised US$1.1b from a sale in January 2002, according to Dealogic.3

Joh. A. Benckiser’s partial exit is indicative of the cycle of activity where private equity and private family holding companies are using IPOs to provide liquidity after they have built businesses from multiple smaller acquisitions, including from larger multinationals selling orphan businesses. The capital raised is then recycled into the next business to be grown — in JAB’s case, in the coffee sector through taking D.E Master Blenders private.

end of the quarter, in early July, the soft drink unit of the Suntory group, Suntory Beverage & Food Ltd., made its debut on the Tokyo stock market, raising US$4b in Asia’s largest IPO of the year. The company plans to use the proceeds to fund acquisitions.4

Investing further in known businessesConsumer products companies are investing further in businesses that they know well as a means of limiting risk. This may take the form of increasing the size of their stakes or buying out the minorities in businesses where they already have an ownership interest. This approach makes strategic sense in the context of the highly challenging, uncertain and complex consumer products environment, which EY has named “the brand new order.”5

Investment themes — This quarter’s notable themes


and retailers in Asia’s emerging markets,” EY, September 2013.

7 Ibid.8 “Danone, China’s Mengniu try again with dairy JV,” Just Food, www.just-food.com,

20 May 2013.9 “WAPC deal more than doubles McCormick’s Chinese sales,” Just Food, www.just-food.com,

31 May 2013.

In this quarter’s top 10 deals, Unilever’s purchase of an increased stake in its Indian subsidiary, Hindustan Unilever Ltd., and Philip Morris International’s purchase of the remaining 20% of Philip

acquisition of D.E Master Blenders also followed the earlier acquisition of a 15% stake in the coffee producer.

US underpinning top 10 dealsThe third theme evident from this quarter’s deal activity, which was even more pronounced in Q1 13, is the prominence of US companies and US-based transactions in the top 10 deals. The US is the target country in two of the top 10 deals, and the buyer is US-based in a further two. The reasons for this trend are macroeconomic, with the recovery in US growth continuing to outpace other regions, particularly Europe.

Financial markets displayed increased volatility in the latter part of the quarter as the Federal Reserve discussed when it might slow down the pace of accommodative monetary policy as the economy strengthens. Despite this greater volatility,

Appetite for consumer products IPOs will also help bolster

Underlying long-term trendsThe pursuit of growth opportunities and scale in emerging marketsAnalysis of the sector demonstrates that the vast majority of multinational consumer products companies are keen to offset the lower growth potential of mature markets and to exploit the long-term shift in economic power toward emerging economies.

For a forthcoming report in the Brand New Order series6 EY surveyed more than 250 consumer products and retail executives in Asia — 69% believe that emerging markets will be

next three years.

The scale of Asia’s rapidly emerging middle class makes it the

for almost one-quarter of the global consumer products market and generate 37% of total consumer products growth.7

The Unilever and Philip Morris transactions in Q2 13 are a means of increasing exposure to emerging markets. In addition to increasing existing stakes, consumer products groups are forming joint ventures — during the quarter Danone announced a yogurt production and sales JV with China’s Mengniu and took an indirect stake in the Chinese company.8 They are also pursuing traditional acquisitions. At the end of May, for example, McCormick & Co. bought Chinese bouillon maker Wuhan Asia-

9 which will increase the US spice group’s Chinese revenues by about 60%.Dave Murray

Global Consumer Products Transactions LeaderEY

“In recent quarters, baby food and snacks have been among the ‘hot’ sectors in M&A activity, illustrating consumer products groups’ pursuit of growth by focusing on higher margin and rapidly growing categories.”



10 “Disrupt or be disrupted: creating value in the consumer products brand new order,” EY Global Consumer Products executive survey, 2012.

11 “Campbell to buy US baby food group Plum Organics,” Just Food, www.just-food.com, 24 May 2013.

Just Food, www.just-food.com, 13 May 2013.

Just Food, www.just-food.com, 3 May 2013.14 “FMCG giant PZ Cussons to buy Rafferty’s Garden baby food,” Just Food, www.just-food.com,

2 July 2013.

To meet growing demand in emerging markets, domestic challengers are also building scale and securing raw material supplies. For example, Shuanghui International Holdings’

source of supply for the Chinese market, while JBS’s purchase of rival Marfrig’s poultry assets gives the beef producer the leading position in the global poultry sector and the number two slot in Brazil’s processed foods market.

Consolidation and portfolio optimization within developed marketsGiven that half of worldwide growth over the next 10 years will come from mature markets, according to research by EY,10 it is still very important for companies to exploit opportunities in these regions.

Companies are also keen to strengthen brand portfolios, increase scale and target higher-growth segments. This consolidation and portfolio optimization theme has several strands:

and margins

securing economies of scale


To achieve these changes, consumer products groups are using different ownership structures, collaborations and contractual

compared with traditional M&A.

Continued pursuit of health and wellness The theme of diversifying into product categories with higher growth and margins has a prominent strand: consumer product companies are focusing on acquiring health and wellness products as an end in itself. For some businesses, this may mean exiting market segments that are performing less strongly. For others, it is about establishing a presence in the fast-growing health and wellness space. This trend is characterized by a surge in deals within the pharmaceuticals sector as businesses expand into nutraceuticals or therapeutic health and beauty products.

One variation on the health and wellness theme is the move by large food companies into the organic baby food market, which offers growth and higher margin potential. In May, Campbell Soup entered the market with the purchase of US baby food group Plum Organics, which had itself bought UK peer Plum UK in January.11 Also in May, Danone acquired more

12 and Hain Celestial bought UK organic baby food brand Ella’s Kitchen.13 Shortly after the end of the quarter, PZ Cussons bought Australian baby food company Rafferty’s Garden from private

14


Deal analysisTop 10 deals in Q2 13

D.E Master Blenders taken private to build global coffee businessThe quarter’s biggest deal was the purchase led by Joh. A. Benckiser, the investment arm of the billionaire Reimann family, of the remaining 85% it did not already own

D.E Master Blenders, the world’s third-largest coffee producer behind Nestlé and Kraft, was spun off by Sara Lee Corp. in 2012. It owns a number of coffee and tea brands, including Douwe Egberts and Senseo, and also makes pods and pads for coffee machines. Joh. A. Benckiser acquired a 15% stake in D.E Master Blenders between July and October 2012 and during the course of last year also bought US-based coffee chains Peet’s Coffee & Tea Inc. and Caribou Coffee Co. for more than US$1b in total.

Since being spun off from Sara Lee the company has faced some setbacks. In February, the company reduced its 2013 sales and

a year, leaving Chairman Jan Bennink in charge.15 According to equity analysts at ING, D.E Master Blenders is now in the hands of an owner with global ambitions: “In our view, Joh. A. Benckiser is serious about putting money behind consolidating coffee.”16 According to Bart Becht, Joh. A. Benckiser Chairman, D.E Master Blenders “would like to become a key challenger to the No. 1 on a global basis.”17

Joh. A. Benckiser focuses on long-term investments in companies with premium brands. In addition to its stakes in coffee businesses, the company also owns a majority stake in Coty and a minority

price represents a 36% premium to D.E Master Blenders volume-weighted average closing price for the three months prior to the announcement. The deal values D.E Master Blenders at US$9.8b

EBITDA, according to analysts at J.P. Morgan Cazenove.18

Shuanghui secures high-quality source of supplyIn May, China’s largest meat processing company, Shuanghui

Foods in the largest-ever Chinese takeover of a US company.

debt, which puts an enterprise value of US$7.1b on the US company.

producer. In the US, the company also has a leading position in several packaged meats categories with popular brands including

said: “We view the transaction price as fair. At 8.7x last twelve months EBITDA, the deal is relatively in line with the 8.5x median and 8.9x mean of relevant protein deals from 2008–2011.”19

The acquisition makes strategic sense for Shuanghui, extending the company’s geographic reach and providing it with a high-quality source of supply to meet increasing demand for protein from China’s growing middle class and will also help to reduce concerns regarding its food safety record.

The quarter’s biggest deal was the acquisition of D.E Master Blenders 1753

US$8.3b

Steven PotterTransactions Advisory ServicesEY

“Joh. A. Benckiser is a long-term private investor building a coffee empire. The coffee market has attractive long-term fundamentals, with annual demand growth often outstripping supply while the trend toward single-serving pods underpins the potential for margin expansion.”

15 “JAB Buys Master Blenders for $9.8 Billion in Biggest Deal,” Bloomberg, www.bloomberg.com, 12 April 2013.

16 “High chance of success, JAB: The coffee consolidator,” ING equity research note, April 2013.17 “JAB to buy DE Master Blenders,” Dow Jones, www.dowjones.com, 12 April 2013.

18 “Investor group led by JAB and DEMB reach conditional agreement,” J.P. Morgan Europe Equity Research, 12 April 2013.

Stephens Equity Research, 30 May 2013.

Deal analysis — Top 10 deals in Q2 13


Kristina RogersGlobal Consumer Products Emerging Markets LeaderEY

“Emerging markets account for almost 60% of Unilever’s revenues and in recent quarters have been growing at double-digit percentage rates. It makes strategic sense for Unilever to consolidate its position in these high-growth markets.”

The deal faces regulatory hurdles, requiring the approval of antitrust regulators and the US Committee on Foreign Investment. Limits in eight rural US states on foreign ownership of farmland, as well as concerns over US pork exports to Japan, must be addressed before the deal can be approved. However, according to press reports, several industry and trade experts have predicted that the sale will not be blocked.20

Unilever raises its stake in Indian subsidiaryDuring the second quarter, Anglo-Dutch consumer goods group Unilever announced its intention to increase its stake in its Indian

offer. Assuming full acceptance, Unilever would spend US$5.4b to increase its stake from 52.48% to 75%. This is the maximum stake Unilever can hold, as under local securities rules a minimum public shareholding of 25% is required for a company to keep its public listing. When the offer closed in early July, however, Unilever had only managed to increase its stake to 67%.21

China Daily US edition, www.chinadailyusa.com, 11 June 2013.

21 “Unilever fails to gain 75% control of Hindustan Unilever,” Bloomberg, www.bloomberg.com, 5 July 2013.

22 “Unilever offers $5.4 billion to raise HUL stake; stock soars,” Reuters, www.reuters.com, 6 June 2013.

23 “Unilever offers $5.4 billion to raise HUL stake; stock soars,” Reuters, www.reuters.com, 6 June 2013.

24 “Seara deal looks nice short-term for Marfrig and long-term for JBS,” J.P. Morgan Latin America Equity Research, 10 June 2013.

forecast earnings for the year ending March 2014, according to Thomson Reuters data, compared with price/earnings ratio of 19x for Unilever Plc.22 Analysts suggested that the price was high on conventional metrics but pointed to the huge size of the Indian market and its high growth potential — views echoed

by the company’s management. According to Unilever CEO Paul Polman: “The long heritage and great brands of Hindustan

1.3 billion people, makes India a strategic long-term priority for the business.”23

JBS claims top spot in poultryIn June, Brazil’s JBS, the world’s largest beef producer, agreed to acquire the Seara Brasil pork and poultry unit of its rival Marfrig

second-largest player in the processed foods segment in Brazil behind BRF but will occupy the leading position in the global poultry sector. JBS entered the poultry sector in Brazil last year and also controls US chicken producer Pilgrim’s Pride Corp.

Marfrig’s rationale is to reduce its debt burden, which had reached US$6.1b after a string of acquisitions of smaller rivals. The company had previously announced plans to reduce net debt by US$1b this year. JBS will pay for Seara, which accounts for about 30% of Marfrig’s revenues, via the assumption of Marfrig’s debt.

According to J.P. Morgan, which values the deal at about 10x EV/EBITDA on a trailing basis, the deal makes strategic sense for

as it does with beef: either from Brazil or from the US, two of the

potentially higher-margin business of processed foods competing against BRF.”24

CSM transforms itself into a bio-ingredients companyIn the bakery sector, Dutch Food Group CSM announced that it had

includes CSM’s European, US and international bakery supplies operations, as well as the CSM brand name.


Consumer Products Deals Quarterly Issue 1512

The divestment is part of CSM’s strategy to transform itself into a bio-based ingredients company. CSM will focus on its two remaining businesses: Purac, the global leader in lactic acid and derivatives, and Caravan, a leading US-based producer of bakery

Supplies unit almost a year ago, saying at the time that it lacked 24

According to analysts at Petercam: “By selling Bakery Supplies

the two remaining companies have leading market positions in the markets they operate [in], generating a nice margin.”25

Philip Morris buys in one of last remaining minoritiesGiven the highly consolidated nature of the tobacco industry, transactions in the sector tend to be small bolt-on deals that are not large enough to be included in the quarter’s top 10 deals.

purchase the remaining 20% that it does not already own in Philip Morris Mexico from Grupo Carso SAB, a conglomerate founded by billionaire Carlos Slim, for about US$700m.

Mike SillsGlobal Food Co-LeaderEY

“CSM has exited the lower-growth bakery supplies business to focus on bio-ingredients. For Rhone it’s a classic private equity deal, buying into a North American and European leader in a fragmented market with consolidation potential.”

Grupo Carso, which has worked in partnership with Philip Morris for more than 30 years, has been gradually reducing its stake in the Mexican tobacco company and sold a 30% stake to PMI for US$1.1b in 2007.

Philip Morris had a 73.5% share of Mexico’s tax-paid cigarette

53% of the market. With cigarette sales in decline in many developed countries, Philip Morris has sought to increase its exposure to emerging markets. Philip Morris maintains a partnership in the Philippines, and according to research from

to try to acquire the remaining 50% of that business over time.26

China Huiyuan Juice secures raw material supplyIn May, China Huiyuan Juice Group agreed to buy a fruit juice concentrates supplier from its controlling shareholder, China

cash and partly through an issue of new shares and convertible preference shares.

The rationale for the deal is to secure key raw materials and generate new revenues. China Huiyuan Industry Holding produces 380,000 metric tons of fruit juice concentrates and purees every year and is one of the major suppliers of raw materials for Huiyuan Juice. The takeover will allow Huiyuan Juice to expand further in China’s fruit and vegetable juice beverage market. Huiyuan Juice claims its juice and nectars have a 54% market share in China by sales volumes.27

24“CSM to Sell Bakery Unit to Rhone for About $1.4b,” Bloomberg, www.bloomberg.com, 25 March 2013.

25 “Disposal of Bakery Supplies reaching its end phase,” Petercam Equity Research, 22 April 2013.

26 “Philip Morris to Buy Full Control of Mexican Unit,” The Wall Street Journal, www.wsj.com, 22 May 2013.

27 “Huiyuan Juice Group to buy fruit juice supplier,” Just Drinks, www.just-drinks.com, 24 May 2013.



Coca-Cola Hellenic shifts listing to LondonIn recent quarters, M&A transactions in the soft-drink bottling sector have generally been consolidations in pursuit of economies of scale. In the second quarter, however, Coca-Cola Hellenic Bottling Company restructured its European-based bottling

Coca-Cola Hellenic Bottling Company is the second-largest bottler of Coca-Cola products by volume, with operations in

and challenging economic environment in Greece, the company decided to switch its listing from Athens to London.

According to credit rating agency Moody’s Investors Service: “In our opinion, this contributes to further reduce the company’s

28

At the end of March, Mitsubishi Corporation, Japan’s largest trading house, agreed to purchase Kirin Kyowa from Kirin

manufacturer and seller of seasonings, sweeteners and other food ingredients. The deal is structured as a share transfer agreement, and under the terms Mitsubishi will acquire an 81% stake in Kirin Kyowa in July 2013. The subsidiary’s corporate name and brand will be changed, and Mitsubishi will acquire the remaining shares on 1 January 2015.

28 “Credit Opinion: Coca-Cola HBC AG,” Moody’s Investors Service, www.moodys.com, 6 June 2013.

For Kirin, the rationale for the deal is to allow greater focus on its core beverage operations. Mitsubishi will incorporate the business into its life sciences division, which was set up in 2011 and focuses on seasoning, sweeteners and fermentation technology. Kirin Kyowa is Mitsubishi’s third investment in the food

commodities, such as coal and iron ore.29

Domtar’s continuing shift into HPCDomtar Corporation, a Canada-based paper manufacturer,

US-based manufacturer, marketer and seller of disposable baby diapers and training pants, from Hong Kong-based DSG International for US$272m.

The deal is Domtar’s fourth transaction in the personal care

purchase of incontinence undergarment maker Attends

offset the cyclicality of its main paper business while generating internal sales volume for its pulp paper products.30

Analysts at J.P. Morgan viewed the deal favorably: “The AHP acquisition makes strategic sense to us and aligns closely with the recent acquisitions that Domtar has made, with diapers often talked about as a potential area to expand outside of adult

well, though the company sees synergies that would bring the multiple down to a more attractive 6.6x.”31

Bloomberg, www.bloomberg.com, 18 March 2013.

30 “Domtar beefs up personal care segment; Buys U.S. diaper maker for US$272m,” National Post, www.nationalpost.com, 29 May 2013.

31 “Domtar: Another logical personal care deal,” J.P. Morgan North America Equity Research, 28 May 2013.



Cash on the table 2013

Cash on the table 2013: consumer products working capital management

industry’s WC performance. However, our research suggests that the 21 leading CP companies are still leaving US$34b unnecessarily on the table — equivalent to 5% of these businesses’ combined sales. To seek further WC gains, these companies will need to embrace substantial changes to address new operational and market issues.

executive summary

products companies and retailers in Asia’s emerging markets

While emerging markets are not new, they have reached a pivot point. In the brand new order, the center of gravity has shifted to Asia. The fragility of mature markets and increased scale of emerging market operations mean that performance in Asia is now critical to both the top and bottom line. Companies cannot just invest to grow — they need to be

imperatives that we believe companies

term growth in emerging Asia.

Find out more at www.ey.com/consumerproducts

Find out more at www.ey.com/consumerproducts

Available at www.ey.com/consumerproductsFollow us on Twitter@EYConsumerGoods

Consumer Products Deals Quarterly Issue 1514


Methodology

consumer products subsectors, consumer products companies acquiring businesses in other subsectors and non-consumer-products companies acquiring consumer products companies.

transactions and was analyzed based on acquisitions by , alternative investment

management groups, certain commercial banks, investment banks, venture capital and other similar entities.

based on the consumer products sector of the seller.

private equity

Joint ventures were not included.

The value and status of all deals highlighted in this report are as of 14 June 2013. Q2 2013 represents deals announced between 15 March 2013 and 14 June 2013.

All dollar amounts are in US$ unless otherwise indicated.

There is no minimum US$ deal threshold.

in all value analyses.

As used in this report, ”total value” refers to the aggregate value of deals with disclosed values for the period under discussion.

The disclosed value as stated in the top 10 deals table is the total value of consideration paid by the acquirer, excluding fees and expenses. The dollar value includes the amount paid for all common stock, common stock equivalents, preferred stock, debt, options, assets, warrants and stake purchases made within six months of the announcement date of the transaction. Liabilities assumed are included in the value if they are publicly disclosed. Preferred stock is included only if it is being acquired as part of a 100% acquisition. If a portion of the consideration paid by the acquirer is common stock, the stock is valued using the closing price on the last full trading day prior to the announcement of the terms of the stock swap. If the exchange ratio of shares offered changes, the stock is valued based on its closing price on the last full trading day prior to the date of the exchange ratio change. For public target 100% acquisitions, the number of shares at date of announcement is used.

Consumer Products Deals Quarterly is based on EY’s analysis of Thomson Reuters data from Q3 10–Q2 13. Data was pulled from the Thomson Reuters database using standard industrial

products includes only those companies in the food, beverages, tobacco and HPC subsectors.

date that the Thomson Reuters database is accessed.

Data source and industry scope

Qualifying deals

About EYEY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities.

EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com.

How EY’s Global Consumer Products Center can help your business Consumer products companies are operating in a brand new order, a challenging environment of spiraling complexity and unprecedented change. Demand is shifting to rapid-growth markets, costs are rising, consumer behavior and expectations are evolving, and stakeholders are becoming more demanding. To succeed, companies now need to be leaner and more agile, with a relentless focus on execution. Our Global Consumer Products Center enables our worldwide network of more than 18,000 sector-focused assurance, tax, transaction and advisory professionals to share powerful insights and deep sector knowledge with businesses like yours. This intelligence, combined with our technical experience, can assist you in making more informed strategic choices and help you execute better and faster.

© 2013 EYGM Limited. All Rights Reserved.

EYG No. EN0505CSG/GSC2013/1077075ED 0114

In line with EY’s commitment to minimize its impact on the environment, this document has been printed on paper with a high recycled content.

This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax, or other professional advice. Please refer to your advisors for specific advice.

ey.com

EY | Assurance | Tax | Transactions | AdvisoryContactsRegion Contact Email/telephone

Global/EMEIA David Murray Global Consumer Products Transactions Leader

[email protected] +44 158 264 3248

John Hope Transaction Advisory Services Leader

[email protected] +852 2846 9997

Americas Gregory J. Stemler Consumer Products Transactions Leader


Latin America Jeremy Barnes Transaction Advisory Services


Country Contact Email/telephone

Brazil Alfredo Della Savia Consumer Products Leader


Russia Dmitry Khalilov Retail and Consumer Products Leader


India Ajay Arora Transaction Advisory Services


China Robert Partridge Transaction Advisory Services Leader

[email protected] +852 2846 9973

Sector Contact Email/telephone

Global Mark Beischel Global Consumer Products Leader


Global Kristina Rogers Global Consumer Products Emerging Markets Leader


Global Emmanuelle Roman Global Consumer Products Markets Leader


Global Andrew Cosgrove Global Consumer Products Lead Analyst


Beverages Steve Wills Global Leader


Food Patricia Novosel Global Co-Leader


Food Mike Sills Global Co-Leader


HPC Anastasia Economos Global Co-Leader


HPC Mark Twine Global Co-Leader


Tobacco Ed Hudson Global Leader


activity levels miss expectations - ernst & young...welcome welcome to consumer products deals...

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