Evaluation of Cloetta: Acquisition driven value creation in the confectionery industry

Viktor Axelsson & Pierre Linde

Student thesis: Master thesis


The purpose of this report is to evaluate the Swedish confectionery manufacturer Cloetta’s performance in order to determine its fair share price as of the 29th of May 2015 and assess whether Cloetta’s acquisition of LEAF in 2012 has created economic value. The rationale behind the acquisition of LEAF was to improve Cloetta’s performance by broadening the product and brand portfolio, gain scale advantages, rationalize the production infrastructure and reach new geographic markets. The transaction amounted to SEK 6.8 billion and expanded Cloetta’s revenues from SEK 987 million in 2011 to SEK 4,859 million in 2012. Consequently, this reversed acquisition repositioned the company on the European confectionery market which makes Cloetta a highly interesting valuation case. The valuation methods employed in this study are discounted cash flow- and relative valuation. To assess whether the LEAF acquisition has created economic value, we have used the economic value added method based on the forecasts underlining the valuation paired with analyses of select performance metrics pre- and post merger. Through an evaluation of the attractiveness of Cloetta’s home markets, we have been able to determine Cloetta’s market position and the future potential of the industry. A strategic review has been carried out to assess the influence of macroeconomic and industry-specific factors in order to map out Cloetta’s internal strengths and weaknesses as well as external opportunities and threats. Furthermore, Cloetta and its peer companies’ financial performance have been scrutinized to derive adequate forecasts underlining the various valuation metrics. Our DCF-model rendered an implied share price of SEK 31.8. The result is derived from a WACC of 4.4 percent during the forecast period and 5.9 percent in perpetuity paired with a terminal growth rate of 1.5 percent. The exceptionally low WACC is a consequence of the particular circumstances in today’s economy and our sensitivity analysis illustrate that a 0.5 percent increase in WACC result in a 12.9 percent decrease in implied share price. The subsequent analysis of valuation multiples revealed that Cloetta’s relative value at a share price of SEK 26.80 as of the 29th of May 2015, and the results suggest Cloetta was somewhat overvalued in relation to peer companies. Taking above factors into consideration, we derived a fair share price of SEK 25.00. The EVA and financial analyses imply the acquisition of LEAF has created economic value. However, the result is highly contingent upon low cost of capital and our model suggests a break-even point for value creation at a WACC of 6.0 percent going forward, ceteris paribus.

EducationsMSc in Finance and Strategic Management, (Graduate Programme) Final Thesis
Publication date2015
Number of pages123