Lindt buys Russell Stover in chocolate combination

Lindt & Sprüngli has agreed to buy a smaller US rival, Russell Stover, in a deal that will bolster the Swiss chocolate maker’s presence in the fast-growing American market.

The two companies said they had agreed not to disclose terms of the contract, but people close to the deal told the Financial Times that Lindt paid about $1.4bn.

Ernst Tanner, Lindt’s chairman and chief executive, described the purchase of the family-owned Russell Stover as the “biggest and most important strategic acquisition to date in Lindt & Sprüngli’s history”.

“[This] is a unique opportunity for us to expand our North American chocolate business and will greatly enhance the group’s status in the world’s biggest overall chocolate marketplace,” he said.

Lindt said it expected the deal to make it the third-largest chocolate maker in the North American market, and that once Russell Stover’s annual sales of $500m were added to its own in 2015, it would have more than $1.5bn of revenues in the region.

Last year the worldwide revenues of Lindt, which began life in Zurich almost 170 years ago, were SFr2.88bn ($3.2bn). It said on Monday that its sales in the first half of 2014 came in at SFr1.2bn.

Analysts from Vontobel said it was an unexpected move from the company as the boxed chocolate market is forecast to grow more slowly than the market as a whole. “However, Russell Stover is strengthening Lindt’s position in the seasonal business as well as in the central US states. Russell has a presence in more than 70,000 drug stores, opening up new opportunities to Lindt.”

Shares in the Swiss group were up 1.6 per cent in morning trading at SFr55,595.

As well as its eponymous boxed chocolate brand Russel Stover produces Whitman’s, and Pangburn’s of Texas. The company’s gift boxes were made famous in the film Forrest Gump, in which the lead character, played by Tom Hanks, says as he eats the chocolates at a bus stop: “My mama always said, life was like a box of chocolates: You never know what you’re gonna get.”

The Ward family, which has owned the company since 1960, put it up for sale this year, and had been working with Goldman Sachs to find a buyer. The sale process attracted interest from other chocolate groups, including Hershey and Godiva.

The deal will give Lindt a range of new products, including gift pralines, and chocolates for a variety of festive occasions, including Easter, Christmas and Valentine’s day, which is one of the most important dates in the US for chocolate gifts.

The Swiss group also expects that the additional scale that the deal will bring will allow it to strengthen its relationship with retailers in North America. Lindt said it planned to keep the headquarters of Russell Stover, which has four chocolate factories in the US, in Kansas City.

Lindt said it would finance the deal through its net cash resources and bank loans, and that it expected the transaction to make “a strong positive contribution” to its earnings per share from 2015 onwards.

Credit Suisse was adviser to Lindt.