Strauss Group buys out TPG stake in Strauss Coffee

Gadi Lesin

Strauss Group is paying €257 million for the 25% stake.

Food company Strauss Group Ltd. (TASE:STRS) reported its fourth quarter 2016 results this morning. The company made a net profit in the quarter of NIS 58 million, 22% less than the NIS 74 million profit in the fourth quarter of 2015. Quarterly revenue rose 7% in comparison with the corresponding quarter to NIS 2.034 million.

For 2016 as a whole, Strauss Group posted a net profit of NIS 355 million, 14% more than in 2015. Annual revenue rose 4% to NIS 7.9 billion.

At the same time as releasing its financials, Strauss Group reported that it was buying the 25.1% stake of private equity firm Texas Pacific Group Capital (TPG) in Strauss Coffee for €257 million. The consideration was determined according to, among other things, the profitability of Strauss Coffee and estimates of global growth in the coffee industry. The consideration is payable in two instalments: €172 million were paid yesterday when the deal was signed and the shares were transferred; the remaining €85 million will be paid by August 15 this year.

In addition, Strauss Coffee will redeem options allocated to its managers for €17 million, and options worth €2 million will be redeemed of converted to options of Strauss Group.

Strauss Group says that the transaction creates value and will contribute to profitability, and that it will mean greater strategic, operational and management flexibility.

Strauss Group chair Ofra Strauss was paid compensation costing NIS 5.87 million in 2016, of which NIS 3.8 million was salary and the remainder bonuses. President and CEO Gadi Lesin was paid compensation costing NIS 7.8 million, of which NIS 4.6 million was not stock based.

In the fourth quarter, Strauss experienced a production malfunction at Sabra, a subsidiary operating in the US, in which Strauss owns 50%, together with Pepsico. Sabra, which makes chilled dips and spreads, especially hummus, has been one of Strauss's prominent growth engines in recent years. Last November, Sabra announced a voluntary recall of several hummus products in North America due to concern about listeria bacteria found in the company production site in Virginia, although not in the final products. The company added that it was taking a series of measures at the plant to deal with the event, and was acting in coordination with the appropriate authorities in the US. No product actually containing listeria was ever found. Sabra's revenue dropped 32% to NIS 233 million following the recall, and the company reported a NIS 26 million operating loss, compared with a NIS 57 million operating profit in the corresponding quarter in 2015.The trend was also evident in Sabra's result for the entire year of 2016, with sales sinking 7% to NIS 1.3 billion, together with a 37% dive in operating profit to NIS 113 million.

Sabra, which also operates in Canada, and, through Obela, in Mexico, Australia and Western Europe, is the largest chilled dips and spreads company in the US, with a monetary market share of over 26% in each category, and a 60% market share in hummus.

With 14,830 employees, food and beverages manufacturer and marketer Strauss is Israel's second largest company. Strauss's share of the local food and beverages market is 11.5%. The company also has important activity in 20 other countries around the world, with an emphasis on coffee, which accounts for nearly 50% of the company's revenue. Strauss is one of the top 10 companies in the world in market share in this category.

Commenting on the Sabra affair, Poalim IBI Underwriting and Investments Ltd. (TASE:PIU) writes, "The damage is substantial, but we believe that it will be moderated with the passage of time, and expect to see some recovery already in 2017." Poalim IBI also mentions that in the fourth quarter of 2015, Strauss received a NIS 5 million insurance reimbursement for a different recall event involving Sabra. The Excellence brokerage believes that Strauss's weak quarterly results were caused by Sabra, and predicts "a slight improvement in the company's results" in 2017 "resulting from an improvement in Israel and in coffee. The main question mark is Sabra's growth rates."

Published by Globes [online], Israel business news - www.globes-online.com - on March 28, 2017

© Copyright of Globes Publisher Itonut (1983) Ltd. 2017

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