On the Street -- Kerry Takes Breeo

March 21/Western Europe Food and Drinks Insights -- Kerry Group has been given approval to buy Breeo Foods after a move to block the deal on competition grounds was thrown out by the Ireland's high court. The purchase price will be 140 million euros, which is 25 million euros less than the sale price agreed in March 2008, and the company has suggested that the deal will result in significant synergies in 2010.

A substantial overlap between Breeo and Kerry's portfolio was identified by the country's competition commission, which suggested the deal would "substantially lessen competition" in the market for bacon, processed cheese and non-poultry cooked foods. This should mean that operational synergies are relatively easy to identify, and it has been estimated that, after the deal, Kerry will control around 80% of the Irish market for spreadable butter and 40% of the market for cheese. However, the precarious nature of the Irish economy has generated some doubt over whether Kerry should have proceeded with the deal, even at a reduced price, a sentiment highlighted when its shares fell slightly on the announcement.

In its last trading update, Kerry Group reported that consumers had become increasingly price conscious in the second half of the year, and that the trend toward premium options, which had still been notable in the first six months of the year, came to an abrupt halt. It is therefore salient that Breeo's portfolio can be regarded as consumer staples, which are unlikely to be particularly hard hit by the downturn. Breeo has not made many moves in the direction of premiumization and in the current environment this can be regarded as a positive.  

From the March 30, 2009, Prepared Foods E-dition