Beiersdorf will make a good target in two years, bankers argue; controlling shareholder Tchibo would be a reluctant seller

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Tchibo, Beiersdorf’s controlling shareholder, should consider selling the German listed consumer giant in the next two to three years once the company’s turnaround is completed, two industry bankers have argued.

But a deal would be hard to pull off as the family that controls German coffee retailer Tchibo has no plans to sell, said a source close to Tchibo, although he didn’t rule out the option completely. Tchibo spokesperson Klaus-Peter Nebel confirmed that the stake was a financial holding but also said it was long term.

Tchibo did not comment on a sale earlier this week of one million Beiersdorf shares placed by Deutsche Bank at EUR 47.50. The seller – rumoured to be a US hedge fund – was not identified. Beiersdorf, whose shares traded up to EUR 48.50, said it did not know who the seller was.

Tchibo owns 50.46% of Beiersdorf. It has been an investor since 1971, but increased its stake dramatically in 2003 when Allianz was selling a 40% stake and Procter & Gamble was reported to be circling.

Since then, the two US-based bankers said the company’s performance has improved under new management, and this should increase the company’s value to potential bidders in two to three years’ time.

Beiersdorf brought in chief executive officer Thomas Quaas in 2005, and he has been realigning its supply chain which is estimated to save the company EUR 100m per year starting in 2009, and aims to raise the EBIT margin by 15% by 2010.

The source close to Tchibo said any talk of a major stake sale was a “red herring” because the Hertz family are long term investors. “You can never say never, but it is not anything on anyone’s agenda and will not be for years,” he said.

One of the two bankers said it would not make sense for Tchibo to sell Beiersdorf in the middle of its turnaround. But in coming years, its performance should improve further and that would be the best time to sell.

A third industry banker said he understood that Tchibo had been prepared to sell its Beiersdorf shares to P&G but didn’t because of P&G’s opposed issues such as keeping the headquarters and jobs in Hamburg. But there are other buyers who would be more receptive to those concerns, such as Colgate-Palmolive among others. He noted that the timing of a Beiersdorf sale would be driven less by Tchibo’s desires to maximize profits than by when a big strategic buyer put an offer on the table, and that could be sooner than two to three years.

Any sale would need to overcome political concerns in Hamburg about jobs and tax income. When fears about these emerged in 2003 as Allianz was selling up, Tchibo and others local buyers, including the Beiersdorf pension fund and the City of Hamburg, bought the Allianz shares, preventing a P&G takeover. The City of Hamburg sold its 10% stake earlier this year.

The source close to Tchibo noted that the Hertz family is still “very conscious of their standing and the local community.”

A recent press report suggested that a dispute among members of the Herz family could result in change after a dissident family member brought in an outsider to put pressure on Tchibo management.

However, analysts said this was more of a sideshow than something that’s going to change company strategy. The source close to Tchibo also noted that the two controlling Hertz brothers are still years away from retirement age.

The source close to Tchibo also doubted that the coffee retailer would buy out the Beiersdorf minorities or try to integrate the company. “They are completely different businesses with different production and distribution. There is nothing to integrate,” he said. With Beiersdorf valued at EUR 12.1bn, it would be expensive and of only marginal benefit. Tchibo already has 56.06% of the voting rights, after allowing for Beiersdorf treasury shares.

Beiersdorf reported strong operating performance for H1 this year, with Q2 sales growing by 9.7% to EUR 1.46bn in nominal terms, and increasing EBIT [before one-off effects] by 20% to EUR 191m. Its Nivea brand, accounting for more than 70% of Beiersdorf consumer sales last year and just over 60% of group sales, grew by an estimated 14% to 16% during H1, according to an M.M. Warburg Investment Research report.

Additional reporting by Kasper Viio and Mintoi Chessa-Florea in London

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