Hershey Completes Initial Purchase of SGM in China
The Hershey Company announces that it has completed the initial closing and acquired an 80 percent stake in the iconic Shanghai Golden Monkey Food Joint Stock Co., Ltd. (SGM), a privately-held confectionery company based in Shanghai, China.
The combination of Hershey and SGM will accelerate both companies’ growth strategies. SGM’s well-established, trusted brand name and diverse product offerings provide Hershey with a meaningful presence in China’s sugar confectionery and snacking markets, and complements Hershey’s existing portfolio in the region. At the same time, SGM will benefit from Hershey’s global scale and recognizable brands and marketing expertise. Hershey will continue to invest in SGM brands and go-to-market capabilities enabling the company to deliver its popular products to more consumers throughout China.
At the initial closing on September 26, 2014, Hershey’s wholly-owned subsidiary, Hershey Netherlands B.V., acquired 80 percent of the total outstanding shares of SGM at a price of RMB 2,416.8 million (approximately USD $394 million). The remaining 20 percent of the shares of SGM will be acquired by Hershey Netherlands at a second closing, which is scheduled to occur on the one-year anniversary of the initial close, at a price of RMB 604.2 million (approximately USD $98 million), subject to the parties obtaining necessary government and regulatory approvals and satisfaction of other closing conditions. The total purchase price upon completion of the second closing will be equal to an enterprise value of RMB 3,543.2 million (approximately USD $577 million), which includes the net debt of RMB 522.2 million (approximately USD $85 million) limit set for the September 2014 close.
“This strategic acquisition advances our international growth agenda and builds on our commitment to the China market by providing world-class, quality products to Chinese consumers,” says Humberto P. Alfonso, president, Hershey International. “We will leverage Shanghai Golden Monkey’s iconic brands, diverse product portfolio and strong sales force to build on the organic growth we delivered in China over the past several years. Acquiring such an iconic and scalable brand increases our opportunity to drive top-line growth and create value for shareholders over the long term.”
China is Hershey’s number one priority international market for growth. The company has increased its investment in China over the past several years and is one of the fastest growing confection companies in China. Driven primarily by the Hershey’s Kisses and Hershey’s brands, in 2014, Hershey net sales in China are expected to be approximately $200 million, an increase of about 40 percent versus 2013. In 2013, SGM net sales were RMB 1,259 million (approximately USD $205 million), an increase of about 7 percent versus 2012.
The addition of SGM gives Hershey a well-known and award-winning brand in China, Golden Monkey, which includes Golden Monkey candy, chocolates, protein-based products and snack foods. SGM’s trusted brands are widely marketed across the country in both cities and rural areas. With the acquisition of SGM, China is expected to be Hershey’s second largest market by year-end 2015 with net sales of around $500 million on a constant currency basis.
Hershey and SGM senior leaders will work collaboratively on integration, portfolio transition and development, and distribution synergies that should enable the combined companies to continue to deliver category-leading, double-digit net sales growth in China.
The acquisition is not expected to affect Hershey’s previously announced adjusted earnings per share-diluted outlook for 2014 provided on July 24, 2014. Excluding integration and transition costs, Hershey expects the acquisition to be slightly accretive on an adjusted basis in 2015.
The combination of Hershey and SGM will accelerate both companies’ growth strategies. SGM’s well-established, trusted brand name and diverse product offerings provide Hershey with a meaningful presence in China’s sugar confectionery and snacking markets, and complements Hershey’s existing portfolio in the region. At the same time, SGM will benefit from Hershey’s global scale and recognizable brands and marketing expertise. Hershey will continue to invest in SGM brands and go-to-market capabilities enabling the company to deliver its popular products to more consumers throughout China.
At the initial closing on September 26, 2014, Hershey’s wholly-owned subsidiary, Hershey Netherlands B.V., acquired 80 percent of the total outstanding shares of SGM at a price of RMB 2,416.8 million (approximately USD $394 million). The remaining 20 percent of the shares of SGM will be acquired by Hershey Netherlands at a second closing, which is scheduled to occur on the one-year anniversary of the initial close, at a price of RMB 604.2 million (approximately USD $98 million), subject to the parties obtaining necessary government and regulatory approvals and satisfaction of other closing conditions. The total purchase price upon completion of the second closing will be equal to an enterprise value of RMB 3,543.2 million (approximately USD $577 million), which includes the net debt of RMB 522.2 million (approximately USD $85 million) limit set for the September 2014 close.
“This strategic acquisition advances our international growth agenda and builds on our commitment to the China market by providing world-class, quality products to Chinese consumers,” says Humberto P. Alfonso, president, Hershey International. “We will leverage Shanghai Golden Monkey’s iconic brands, diverse product portfolio and strong sales force to build on the organic growth we delivered in China over the past several years. Acquiring such an iconic and scalable brand increases our opportunity to drive top-line growth and create value for shareholders over the long term.”
China is Hershey’s number one priority international market for growth. The company has increased its investment in China over the past several years and is one of the fastest growing confection companies in China. Driven primarily by the Hershey’s Kisses and Hershey’s brands, in 2014, Hershey net sales in China are expected to be approximately $200 million, an increase of about 40 percent versus 2013. In 2013, SGM net sales were RMB 1,259 million (approximately USD $205 million), an increase of about 7 percent versus 2012.
The addition of SGM gives Hershey a well-known and award-winning brand in China, Golden Monkey, which includes Golden Monkey candy, chocolates, protein-based products and snack foods. SGM’s trusted brands are widely marketed across the country in both cities and rural areas. With the acquisition of SGM, China is expected to be Hershey’s second largest market by year-end 2015 with net sales of around $500 million on a constant currency basis.
Hershey and SGM senior leaders will work collaboratively on integration, portfolio transition and development, and distribution synergies that should enable the combined companies to continue to deliver category-leading, double-digit net sales growth in China.
The acquisition is not expected to affect Hershey’s previously announced adjusted earnings per share-diluted outlook for 2014 provided on July 24, 2014. Excluding integration and transition costs, Hershey expects the acquisition to be slightly accretive on an adjusted basis in 2015.