Mars has made a move to buy Hotel Chocolat, a UK retailer of upmarket chocolate products.
The Galaxy and Snickers owner has had an offer worth £534m ($662.4m) accepted by the publicly-listed chain.
In a stock-exchange filing announcing the bid, Hotel Chocolat said its directors considered the cash offer, which is valued at 375p per share, to be “fair and reasonable”.
The cash bid represents a “premium of 169.8%” to Hotel Chocolat’s share price of 139 pence at the close of business yesterday, the filing stated.
The Hotel Chocolat board, which in total holds more than 54% of the business, has pledged to accept the bid. Shareholders representing around 69.6% of Hotel Chocolat have given “commitments and indications of support” for the deal, the filing noted.
“Hotel Chocolat’s brand destiny is to become a leading premium chocolate brand in major markets through reinventing chocolate for people and nature. In Mars we have found a true meeting of minds – in strong cultural values, bold strategy and true long-termism,” Angus Thirwell, Hotel Chocolat’s CEO and a co-founder of the business, said.
Last week, the retailer booked a 10% fall in annual revenues to £204.5m.
Revenue from the group’s UK business dropped 8% to £197.4m amid a 24% decline in digital and wholesale sales. Store sales were up 8%. Hotel Chocolat has 131 stores in the UK and 20 in Japan.
Sales from Hotel Chocolat’s “international channels” fell from £11.6m to £7.2m. The company has reset its business outside the UK and is principally focusing on Japan and North America.
In the financial year, which covered 53 weeks to 2 July, Hotel Chocolat generated an operating loss of £4m, versus one of £6.6m in the 52 weeks to 26 June 2022. Its loss for the 53-week period was £6.2m, against £9.4m the year previous.
“We know our brand resonates with consumers overseas but operational supply chain challenges have held us back. By partnering with Mars, we can grow our international presence much more quickly using their skills, expertise and capabilities,” Thirlwell said today.
As an alternative to Mars’ cash offer, the privately-owned confectionery giant has put forward an offer that would give eligible Hotel Chocolat shareholders the option of receiving one unlisted Class B share in Bidco for each of their shares in the retailer.
Bidco is the wholly-owned indirect subsidiary of Mars through which the Bounty brand owner is looking to make the acquisition.
In the filing, Hotel Chocolat said its directors “are not making any recommendation” to investors on the share-based offer. The statement listed three “disadvantages” of accepting that option: the Class B “rollover” shares are unlisted; they are subject to a five-year lock-up that limits how they can be transferred; and they are of “uncertain value”.
Mars, one of the world’s largest chocolate makers, and Hotel Chocolat are “highly complementary”, Andrew Clarke, the president of Mars’ snacking business, said.
“We are confident that Mars will be an excellent long-term home for Hotel Chocolat, providing a like-minded, entrepreneurial and purpose-led environment in which to maximise the potential of the Hotel Chocolat brand which is already so beloved by consumers,” Clarke added.
Mark Lynch, the founding partner at UK corporate advisory firm Oghma Partners, said the deal could benefit Mars and Hotel Chocolat.
“It extends Mars offering into the premium segment of the market and strengthens the direct route to the consumer via the own-store network and D2C sales,” Lynch said. “With Mars resources and geographical presence, it could allow an accelerated expansion of the business overseas which would be a win-win for both parties.”
Katie Page, content director for GlobalData's consumer industry practice, said the deal meant Mars "has the potential to add luxury cachet and operational diversification" to its business "especially in terms of the hallmark retail and service elements of Hotel Chocolat’s business model".
She added: "This would help Mars to secure a more competitive position in the long-term as consumers globally look to reduce their daily intake of cheap sugary snacks in favour of more considered occasional luxury treating."
Katie Page, content director for GlobalData's consumer industry practice, said the deal meant Mars “has the potential to add luxury cachet and operational diversification” to its business “especially in terms of the hallmark retail and service elements of Hotel Chocolat’s business model”.
She added: “This would help Mars to secure a more competitive position in the long-term as consumers globally look to reduce their daily intake of cheap sugary snacks in favour of more considered occasional luxury treating.”
However, Page expressed uncertainty about the prospects for the status of the Hotel Chocolat brand.
“What’s less certain is what the acquisition would mean for Hotel Chocolat’s brand in the long term. Certainly, Mars’s financial clout and international footprint will enable the successful overseas expansion that Hotel Chocolat has long craved and been unable to execute successfully. However, I have to wonder at what cost,” she explained.
“If expansion happens too rapidly, will the brand be able to maintain its signature single-estate cocoa sourcing at a much larger scale? Not doing so risks compromising one of Hotel Chocolat’s most unique USPs and could damage the credibility of the brand. Watering down strong ESG credentials would be a risky long-term move.”
