Industry Trend Analysis - Mondel?z M&A Cooled But Still Possible - DEC 2017

BMI View: Monde lez ' s company history, including a bid for Hershey and through its previous association with Kraft, suggests that it may be interested in acquiring another confection ary business . This would be done to boost its North American revenues in our view, and we highlight Nestle ' s unit as potentially attractive. We don ' t believe it will be brought back into Kraft Heinz however , as a merger wouldn't benefit either company.

One of our key views for the confectionary and snacks industry for the next five years is the expectation that there will be further consolidation among the major players (see ' M&A Needed To Consolidate Struggling Confectionary Market', July 21 2016). This is due to the crowded nature of the market, which is seeing demand for legacy chocolate, snacks and other confectionary products stagnate as consumer preferences shift towards healthier products. This ongoing trend promoted Mondelez to launch a USD23bn takeover bid for Hersheys in June 2016, which was ultimately rejected by the trust that controls Hersheys.

The deal made sense for Mondelez, as it would considerably boost its presence in North America, which accounted for a relatively modest 26.9% of its revenues in 2016. It would also unify the Mondelez-owned Cadbury brand, which is exclusively licensed by Hershey in the US, with Mondelez holding the rights in the rest of the world. While a future deal seems unlikely at this point due to the opposition to sell of the Hershey Family Trust, we believe there are other potential deals out there that might suit Mondelez.

Potential Acquisitions Would Look To Boost North America Revenues
Revenue Contribution By Geography (%)
Source: Mondelez International, BMI

For example, in June 2017, Nestle announced that it would explore the sale of its own US confectionary business, which includes Butterfinger, BabyRuth and 100Grand brands. Aside from Nestle, there are other targets in the US industry that might be of interest to Mondelez, in particular, acquiring a healthy, authentic snack food company would help to shore up its attempts to attract the growing health conscious consumer. This has been a key trend among the food industry, with traditional players acquiring craft or other young, popular companies that have a health focus, including Danone and WhiteWave Foods and Nestle and Blue Bottle Coffee.

Finally, there have also been rumours regarding the possibility that Mondelez itself may be the target of an acquisition. Following Kraft Heinz's failed attempt to acquire Unilever in February 2017, there has been speculation that it would look to re-acquire Mondelez after the latter was spun off from the company in 2012. Warren Buffet in an August 2017 interview with CNBC denied that Kraft Heinz is interested in a bid. Given the fact that Mondelez was spun off in order to grow independently and the lack of fit between the two, it would be an unlikely turn of events to have it be re-acquired in our view.