Tough time to sell Ukraine president's "mouthwatering" candy empire

Lotte

15/09/2014 09:13

(Repeats story issued on Sept 14) 
    By Sophie Sassard and Anjuli Davies 
    LONDON, Sept 14 (Reuters) - A chance to buy the candy empire 
of Ukrainian President Petro Poroshenko is the kind of 
opportunity in a fast-growing market that would normally have 
multinational confectioners - like Nestle or Cadbury's parent 
Mondelez - drooling at the prospect.  
    But despite owning factories in four countries and making 
$1.2 billion in annual sales, Ukraine's "chocolate king" may 
have a hard time finding a buyer for his company, now that its 
founder is the leader of a country at war. 
    "It's all academic given the political situation at the 
moment," said a financial source closely following the 
situation.  
    "But at its core it makes your mouth water." 
    After years of combining his career as a billionaire candy 
boss with posts in successive governments, Poroshenko promised 
when he was elected in May to sell Roshen, the confectionary 
empire named for the middle two syllables of his surname. He has 
since hired advisors Rothschild and local firm Investment 
Capital Ukraine to drum up investor interest. 
    On paper, there is a lot to tempt investors. Eastern Europe 
is a region with a sweet tooth, accounting for 12.8 percent of 
global candy sales despite a much smaller share of the world's 
population. Roshen is the region's second biggest locally-owned 
producer, ranked 18 in the world by net sales according to the 
Candy Industry Top 100. 
    Apart from its main factories in Ukraine, it has plants in 
EU members Lithuania and Hungary as well as in Russia. In a 
region where tastes are still dominated by local habits, its 
decorative assortment boxes with names like "Kiev Evening" and 
"Royal Dessert" hold their own against global chocolate brands. 
    Although it could be broken up into parts, an asking price 
that insiders say is likely to be around $1.5 billion means the 
company is probably too big to be swallowed whole by domestic 
players in Ukraine. 
    That would seem to make it a perfect target for firms like 
Switzerland's Nestle  NESN.VX  or Mondelez  MDLZ.O , the U.S. 
snack and confectionary business split off from Kraft that 
includes Britain's Cadbury. Both are investing in the region and 
not shy about acquiring local brands. 
    Nestle has looked at buying other confectionary businesses 
in Ukraine, the sources said, while Mondelez announced in April 
it is spending $110 million to open its fifth factory in Russia 
next year. 
    But finding a buyer for a company associated with a war-time 
leader is no simple matter. 
    Until last year, Russia accounted for about a fifth of 
Roshen's sales. But Moscow banned imports of Roshen's Ukrainian 
chocolates to Russia last year, officially on health and safety 
grounds, and shut its Russian factories in March in a criminal 
case that Kiev says is politically motivated. Since July, Russia 
has banned all Ukrainian chocolates. 
    Kiev says Russian forces have supported pro-Russian 
separatists in the east of Ukraine in a conflict which has 
killed more than 3,000 people, although a ceasefire has been in 
place for a week. Moscow annexed Ukraine's Crimea peninsula in 
March and President Vladimir Putin now calls eastern Ukraine 
"New Russia", although he denies involvement in the war. 
    Those close to the effort to sell Roshen say the company's 
prospectus is being shopped despite the conflict. 
    "Contact has been made with prospective buyers but it's very 
preliminary," said one of the sources, who declined to be 
identified as the process is private. "This is a big and complex 
situation and any sale is not going to happen in a few weeks. 
Don't expect anything imminent."  
    Financial sources closely following the deal said that given 
the tense political situation, any sales process is likely going 
to be complicated because commercial or strategic logic won't 
apply. Large international players are unlikely to table bids 
before the conflict is clearly over, they said. 
    Roshen did not immediately respond to an email seeking 
comment. ICU could not be reached. Rothschild declined to 
comment beyond confirming that it had been hired.  
    Roshen would be attractive to confectionary companies in the 
low-to-mid-market chocolate range who are keen on expanding in 
emerging markets and willing to navigate political interference. 
    Mars, the world's biggest chocolatier,  MNBP.PK  is unlikely 
to be interested because it only markets its own brands. But in 
addition to Nestle and Mondelez, interested parties could 
include Korean firm Lotte  004990.KS  which entered the region 
in 2010 with the purchase of Poland's Wedel from Kraft Foods, 
and Turkish food manufacturer Ulker  ULKER.IS . 
 
 (Additional reporting by Elizabeth Piper and Maria Kieselyova 
in Moscow; Editing by Peter Graff) 
 ((anjuli.davies@thomsonreuters.com)(+44 207 542 6670)(Reuters 
Messaging: anjuli.davies.thomsonreuters.com@reuters.net)) 
 
Keywords: UKRAINE CRISIS\CHOCOLATE