Bakers IAWS, Hiestand in 2.5bn euro merger

By Lindsey Partos

- Last updated on GMT

Related tags Bakery market Value added

Irish baker IAWS is set to merge with Hiestand of Switzerland to
create Aryzta, a €2.5bn firm that will spear the €30bn global
value-added bakery market.

Announced this morning, the consolidation is the culmination of a five year partnership kicked-off in 2003 when IAWS purchased a 22 per cent stake, later boosted to 32 per cent, in the Swiss specialist bakery and convenience company.

"We believe Aryzta will be the global leader in value added baked goods," said Owen Killian, Chief Executive of IAWS, in a conference call earlier today.

The link-up will seek to leverage the geographical reach, intellectual properties and 'substantial footprint of distribution' of both companies, aiming to tap into the high growth value added bakery market that in Europe alone is seeing growth rates of around 4.5 per cent per year.

In terms of geographic coverage, IAWS operates in North America, the UK, Ireland and France while Hiestand's main operations are in Switzerland, Germany, Austria, Poland, Malaysia, Japan and Australia.

Consolidation continues to mark the landscape for the food sector.

Not just about buying-in knowledge, consolidation is now a necessary strategy to compete in a testing environment.

As the big retailers and food makers gained in critical mass, the supply chain felt the impact of price pressures.

Consolidation represents a solution to beat the pressures through economies of scale and opportunities to trim margins.

"Consolidating food industry...may reduce the margins forcing companies to acquire economies of scope, not only in production but also in R&D, as investment in R&D increases by the day," says Frost & Sullivan in a recent report.

Indeed, recent figures from Mergermarket show merger and acquisition activity in the European food sector topped €24bn in 2007.

Under terms of the deal, in addition to its current 32 per cent stake, IAWS has agreed to buy a further 32 per cent in Hiestand from private equity company Lion Capital for €30m in cash and 12.7 million new shares.

Hiestand and IAWS have a market capitalisation of €680 million and €2 billion respectively.

The merger, due to be completed in the third quarter of 2008 and subject to anti-trust hurdles, will see Aryzta - that "preserves the cash and maintains the balance sheet" for both firms - listed in Dublin and Zurich.

Aryzta will have 200,000 customers and a geographical reach creating "access to 750 million consumers," said Owen Killian today.

According to Killian, who will become CEO of Aryzta, the merged firm will tap into the value-added bakery market worth about €14bn in Europe, €9bn in the US, and on strong growth of 7 per cent per annum, about €5bn in Asia Pacific.

Evoking organic growth, Killian added that the name 'Aryzta' derives from name for the apex of a single ear of wheat.

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