Barry Callebaut is to gain top rank among world cocoa grinders by buying the processing division of Singapore-based Petra Foods for $950m in cash, also strengthening its foothold in the growing Asian market.
Swiss-based Barry Callebaut, currently the second-biggest grinder, will add more than 400,000 tonnes in annual processing volumes from the deal, taking its total nearly to 1.2m tonnes, enough easily to overtake Cargill, which grinds some 800,000 tonnes of cocoa a year.
Barry Callebaut said that the deal will also boost presence in the "fast-growing" markets of Asia - where Petra Foods currently ranks as the top cocoa group, followed by Indonesia's Guan Chong - and Latin America.
Emerging markets currently account for 66% of sales, by volume, for Petra Foods' cocoa division, which has processing plants in Brazil, Indonesia, Malaysia, Mexico and Thailand, besides in France and Germany.
The acquisition "significantly adds production capacity in emerging markets, especially in Asia, which is crucial for Barry Callebaut's own chocolate business, and for further growing outsourcing and partnership agreements", Barry Callebaut chief executive Juergen Steinemann said.
One of the group's main business lines is in making chocolate for labels including Swiss-based Nestle, Anglo-Dutch conglomerate Unilever and Mexico's Grupo Bimbo.
The deal will see it supply chocolate too to Petra Foods, which said that it was, after the disposal, to "focus on strengthening and expanding its branded consumer division", investing in brands and launching new products, but may distribute some of the proceeds to shareholders.
Mr Steinemman said that the takeover will also allow Barry Callebaut to diversify its sources of cocoa beans, raising the proportion bought in Asia and meaning a "reduced dependency" on West Africa.
Some parts of West Africa, the top producing region, have a history of political instability, including Ivory Coast, which descended into civil strife last year after presidential elections.
Elections this week in neighbouring Ghana, which elected John Dramani Mahama as president, have been reported as peaceful, although the opposition has claimed the vote was rigged.
Barry Callebaut estimated deal benefits, such as stripping out duplicated costs, reaching SFr50m-35m a year, if requiring one-off spending of SFr20m-25m to achieve, including bankers' and legal fees.
"The planned acquisition will create value for all stakeholders," the group said, while ditching until 2015-16 its long-term guidance of 6-8% in growth in sales volumes and operating profit.
Barry Callebaut is to raise cash from equity and debt markets to pay for the takeover, which will also bring some 1,700 employees and sales offices in the Netherlands, Singapore and the US.
Shares in the group closed down 2.3% at SFr919.00.
Petra Foods, whose stock soared 20% to a record closing high of Sing$3.31 in Singapore, said that the disposal of its cocoa division represented the "most attractive" option, compared with making the investment needed to growing the unit organically.
"While all of us at Petra Foods maintain a strong emotional attachment to our cocoa ingredients division, we believe the sale will allow us to immediately unlock substantial value in the business," John Chuang, the Petra Foods chief executive, said.
The cocoa division achieved operating profits equivalent to SFr44m last year, on revenues from external customers of SFr1.13bn.