Karlshamns and Aarhus to merge?

Related tags Fat Stock market Aarhus

Consolidation in food ingredients continues with Nordic fats and
oil firms Aarhus United and Karlshamns set to merge, creating one
of the world's leading suppliers of cocoa butter alternatives,
reports Lindsey Partos.

Ending months of speculation, Aarhus' main shareholder UIE has done a 360 degree turn. Initially putting its majority slice up for sale last year, yesterday it informed the market it would link up with Swedish firm Karlshamns to bring the two Scandinavian fats and oil companies together.

UIE announced that in co-operation with the main shareholder of Karlshamns, Melker Schorling (MS), they plan to submit a "joint offer to the shareholders of Aarhus and Karlshamns to take over their shares"​.

Combined, last year the two firms pulled in over €1 billion in sales, and €75 million in EBITDA.

"The combined entity is believed to be able to achieve substantial synergies both in terms of improved utilisation of the existing plants and equipment, but also in terms of opportunities for improved capital expenditures,"​ said UIE.

Both firms stressed the announcement 'did not constitute a formal announcement of a public offer'.

The future of Aarhus has been uncertain since UIE, citing a potential difference in long-term investment interests, announced in October 2004 it would divest its 45.6 per cent chunk of Aarhus.

As Scandinavia's number one fats and oils company, from the outset Karlshamns was mooted as the natural frontrunner for the Aarhus business: a combination of the two businesses creating a strong market player within speciality fats for the confectionery and food industries.

But as time dragged on, and no announcement occurred, speculation faded from Karlshamns towards other prospects.

Indeed, only last month rumours pitched Chinese farm and chemical group, Gansu Yasheng group, as the new future owner. Financial daily Børsen​ reported that negotiations with the Chinese conglomerate were expected to close by the end of April.

But the announcement yesterday reignites the possibility of consolidation in the European oils and fats industry, necessary to face growing challenges.

The rising power and ongoing growth of the multiple retailers is putting constant pressure on ingredients companies to keep up with the pace, deliver products at competitive prices and guarantee supplies.

A gain in critical mass through consolidation, and economies of scale are two of the only routes open to them, providing sufficient leverage to meet the challenge.

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