Alpro second round fetches interest from Dean Foods, Raisio and Unilever

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Alpro, the soy products business put up for sale by Belgian food group Vandemoortele, has attracted second round bids from Dean Foods, Raisio and Unilever, sources following the situation told mergermarket.

However, several multinational industry players, including Nestle, Pepsi, Coca-Cola and Danone, are unlikely to be present at the final stage of the auction, several of the sources claimed.

The target offers little added value to a firm such as Nestle, which is looking to expand its presence in the health segment, two sources argued. Alpro is small, when Nestle is looking for global presence, and it would constitute a mere widening of the portfolio off the core interest, one of the sources explained.

Furthermore, for dairy players such as Danone and Nestle, Alpro brings the risk of cannibalising their dairy products and is not positioned in a market that offers fast growth, several sources argued.

A third source, close to the process, countered that for Nestle, Alpro “ticks all the boxes” in terms of size and product range and as a growing company. He added that Danone’s recent rights issue means the Paris-listed group faces no financial impediments to a bid. The soy sub-sector is also growing quicker than the dairy industry, the third source asserted.

It is understood, however, that Alpro, with revenue of more than EUR 250m, forecasts EBITDA of EUR 30m in 2009 against a similar figure in 2008, with this figure expected to remain fairly flat in 2010. A sharp increase in both revenue and EBITDA is forecast only 3-5 years from now, it was said.

Danone declined to comment. Nestle was unavailable for immediate comment.

A fourth source claiming familiarity with the situation pointed to the structure of the process as a complication. Industry-wide, there are few auctions at present because of obvious financing difficulties, with bilateral deals dominating, the fourth source said. The fourth source said the process appeared to have hit an impasse, though the third source disputed this assessment.

The vendors are comfortable with the process, and are expecting the deal to go through within the coming weeks, a fifth source close to the process countered. Some of the big names are still there, he added. The third source offered a similar assessment – while one major suitor had withdrawn, other major players are still involved, he said.

Dean Foods and Raisio have shown interest from the start of the process, several sources following the situation said. US-listed Dean Foods announced a stock offering in May, expecting to raise about USD 400m to reduce debt, one of the bankers noted. One of the sources added that the company would have an interest in Alpro because of its presence in soy products in the US. Still, the company’s equity ratio remains challenging, he noted.

Dean Foods’ total debt at 31 March 2009, net of USD 63m of cash on hand, was approximately USD 4.3bn, the company reported last month. The company’s funded debt to EBITDA ratio, as defined by its credit agreements, declined to 4.45x as at the end of the first quarter, which is below the final leverage covenant stepdown to 4.5x that will take place on 31 December 2010.

Dean Foods declined to comment.

Unilever is also expected to have reached the second phase of the auction, but is looking to reap different synergistic advantages from Alpro compared to its rivals, bankers said. For Unilever, it is more about slicing up the organization and plugging it into its own platform, one banker explained.

Unilever declined to comment.

Another banker said Raisio would be cautious to pay a full price for Alpro, despite having flagged up a position of good liquidity.

At the time, Raisio’s CEO Matti Rihko explained that combined with a cash position of EUR 200m after its margarine business disposal, and the possibility of raising a further EUR 100-200m in debt, the company’s war chest could reach EUR 300-400m. Raisio’s turnover in 2008, including the margarine business, was EUR 504m. Its market capitalization stood at EUR 312m this morning.

Raisio declined to comment.

An industry source said the sellside “would prefer a less obvious party” as a bidder. A lower-profile suitor would be more willing to compromise on price in order to secure the target, the industry source said.

Alpro has a turnover of EUR 260m and is expected to fetch bids at 1x-1.35x sales, according to recent reports. The fourth source claiming familiarity with the situation said that with major sector players in the running, multiples of 10x EBITDA could be realised for a total of EUR 300m. At the same time, much depends on the willingness of parties to accept a scenario in which sizeable growth is predicted to be several years off, the fourth source noted.

Vandemoortele was unavailable for comment.

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