Lion cooks up bakery merger


Hiestand, a Swiss producer of bakery products backed by Lion Capital, has agreed to merge with Irish food group IAWS in a €2.5bn deal less than four months after Lion invested in the company.

On February 21, Lion said it had agreed to pick up a 32% shareholding in Hiestand from Focus Capital. Market conditions had effectively forced the activist shareholder to sell its position.

At the time Lion Capital partner Lyndon Lea said: “We view ourselves as long-term strategic investors in Hiestand and are fully supportive of the management’s strategy.”

Since December 2005, IAWS had also had a 32% stake but was not prepared to buy Focus Capital’s equivalent holding. That would have given IAWS majority control and forced it to make a mandatory offer to minority investors in the company.

Lion invested at an undisclosed sum in Hiestand. However, on February 21 Hiestand shares closed at SwFr2,300, nearly 30% above the current SwFr1,775 share price.

Now, IAWS has made an agreed offer for Lion’s stake. It will pay €30m in cash and the remainder in shares. This has triggered a full offer for Hiestand. Following the merger, Lion will hold an 8% stake in the new group, to be called Aryzta.

Lyndon Lea, already a Hiestand director, will join the board of the enlarged entity, as will all other directors of the Swiss company. IAWS chairman Denis Lucey will chair Aryzta, with Wolfgang Werlé, chairman of Hiestand, as deputy.

The deal creates the world’s leading maker of bakery products, such as croissants, that can be frozen and reheated by bakeries and domestic consumers. Last year, the combined group made €2.3bn pro forma revenues and earnings before interest, tax and amortisation of €215m. The deal has thus been struck at 11.6 times those earnings.

Lion’s Lea said: “We are pleased to have played a significant role in facilitating this exciting transaction. We believe that the combination of Hiestand and IAWS has strong strategic rationale.”

Makers of bakery products can generally pass on rising raw material costs to customers. Some analysts have suggested that Aryzta could benefit from consumers switching from fresh croissants to its cheaper frozen ones.

The strengthening euro has also assisted European food companies expanding into the US. At the end of 2006, IAWS itself bought US muffin maker Otis Spunkmeyer for US$561m.

And this May, Denmark’s leading baker Lantmannen bought its first US bakery, EuroBake, a frozen pastry producer in Florida, for an undisclosed sum.

The merger, the largest in the European food sector this year, is expected to complete by the end of September. Credit Suisse advised IAWS, with Davy and BNP Paribas assisting. Swiss Capital and Sarasin acted for Hiestand.