Lemonheads owner Ferrara eyes Nestle's candy business - sources

Reuters

Published Jul 21, 2017 23:10

Updated Jul 21, 2017 23:20

Lemonheads owner Ferrara eyes Nestle's candy business - sources

By Lauren Hirsch

(Reuters) - Ferrara Candy Co, the owner of candies such as Lemonheads and Now & Later chews, is preparing to participate in the auction for Swiss food group Nestle SA's (S:NESN) U.S. candy business, people familiar with the matter said on Friday.

A potential deal would add chocolate brands such as Butterfinger and Baby Ruth to Ferrara's array of gum and soft-candy offerings.

Nestle said in June it would explore strategic options, including a possible sale, for its U.S. candy business, whose brands also include Nips, SweeTarts and Raisinets. Analysts at Jefferies peg its value at between $1.5 billion and $2 billion.

Nestle, the world's largest packaged foods maker, has been acting to shed underperforming businesses. U.S. activist shareholder Third Point LLC, which has a $3.5 billion stake in the company, is pressuring Nestle to boost returns as demand for its products weakens.

The business for sale has annual sales of 900 million Swiss francs ($923 million). It is the No. 4 player in the U.S chocolate and candy industry market, behind Hershey Co (N:HSY), Mars Inc and Lindt (S:LISN), according to Bernstein Research.

Ferrara and its private equity owner, L Catterton, declined to comment. Nestle did not immediately respond to a request for comment.

Oakbrook Terrace, Illinois-based Ferrara's origins date back to 1908 when Salvatore Ferrara started selling Italian pastries and sugar-coated candy almonds. It was sold to private equity firm L Catterton in 2012, after the founder's son, Nello Ferrara, died.

Under L Catterton's ownership, Ferrara merged with another of the buyout firm's portfolio companies, Farley's & Sathers Candy company, owner of sugar-coated jelly brand Chuckles and other candies.

Ferrara had explored a sale earlier this year that it hoped would value it at more than $1.3 billion, but terminated the sale process after disagreements over price.

The U.S. sweets industry has become more challenging as consumers shift their preferences to healthier items. Still, many consumers who eat sweets increasingly prefer chocolate to sugar candies.