The Hubert brands were kick-started when six French dairy co-operatives got together to market their products in the Alsace region of France. Dairy Crest acquired the company in 2007 and the spreads now account for 36% of that segment in France and 60% of the category in Italy.
Earlier this month, management at the UK dairy company announced a strategic review in regards to St Hubert, which from a market perspective, was one step away from erecting a “For Sale” sign on the brands, which include Cholegram, Le Fleurier and Omega 3.
With little scope to buy and build upon this business, which was the original rationale for the acquisition, Darren Shirley, food industry analyst at Shore Capital, said he expects it to be disposed of with a potential price tag of £360m or above.
“Where we see Dairy Crest's core activity is in the UK consumer brands, which are well liked, well invested and hold strong market positions. In due course, we can envisage Dairy Crest as a focused consumer brands company, perhaps bolting on and creating new products in similar and adjacent sub-categories within the mass supermarket chilled dairy food cabinet.
Accordingly, we sense that management will want to use an element, maybe a significant element, of any disposal proceeds gained and cash generated from on-going operations to develop its brand portfolio. Disposing of St Hubert is a key and sensible first step, in our view,” continued the UK food sector specialist.
Lactalis to top list of buyers?
Speaking to FoodNavigator this morning, Julian Wild, corporate finance partner at Rollits, said as St Hubert spreads are such strong performers in the French and Italian markets, he expects all the major European players to seriously consider purchasing the brand.
“And Lactalis would likely top that list,” he continued. “It is an inquisitive player and St Hubert is in its own back yard.”
Wild said it was difficult to determine if Arla, which is also in that marketplace, really had the necessary buying power. He put the potential purchase price even higher than Shore’s estimate - at £440m - which he said would offer a great return on an investment of only five years.
“Additionally, I would be very surprised if Unilever went any further in the spreads marketplace. Long term, I see that company exiting the spreads business altogether,” added the Rollits food sector expert.
Liquid milk exit also on the cards?
Dairy Crest issued a FY 2011/12 pre-close trading update today, reporting that fourth quarter trading and the full year has been in line with management expectations but analysts note its continual struggle with the liquid milk division, despite delivery of the targeted £20m of cost savings.
While Shirley, in a note, suggests the UK company might raise retail price levels again or cut farm-gate costs, Wild estimates that Dairy Crest will have to dispose of the milk division and concentrate on the strong UK consumer brands such as Cathedral City and Country Life.
He sees Müller or Arla, looking to consolidate within the sector, as the likely investors in this regard.