Ferrero's takeover of Thorntons? It’s a great deal to chew over


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The Independent Online

Who can deny a tinge of sadness as Thorntons disappears into the Italian maw of Ferrero?

Thorntons toffee, smashed into craggy chunks with a mallet in Granny’s kitchen, was the highlight of my 1970s holidays in Derbyshire. So sticky it could pull a wobbly tooth at 40 yards, so buttery it came in greaseproof paper.

Even better was to have a bag of it in your pocket as you browsed the Airfix in Sheffield’s Redgates toy shop. A memory as English as clotted cream and scones.

There’s a reason why I harp on nostalgically. For it is precisely this traditional Englishness of the Thorntons brand that, despite years of decline and despair, the canny Italians at Ferrero have spotted.

And what a confection of chaos the modern Thorntons has been. For the best part of a decade, it was the one company you could rely on for profit warnings whatever the weather. Too hot? “Chocolate sales have melted.” Too cold? “Ice-cream sales have been frozen.”

An over-reaching expansion programme led it to open a store in every town, only to see it forced, expensively, to retrench when the going got tough. It moved aggressively into supermarkets, only then to botch its distribution at key selling times.

Jonathan Hart, the chief executive, seemed to be doing the right thing in culling stores until, six months ago, it was back to issuing Christmas profit warnings, followed by more grim news in March on weak supermarket revenues. His resignation in May seemed to highlight just how badly things were still going wrong.

Its relationship with Tesco has deteriorated particularly badly, despite the retailer being one of its biggest customers. Talk to insiders there and they’ll tell you, exasperatedly: “Thorntons just doesn’t seem to listen to us.”

Many shareholders lost the faith and assumed it was just a company set to dwindle away. But that was to forget the potential pull to multinational bidders for this quintessentially English product which, lest we forget, was still making several million pounds a year, even in the bad times.

Lindt’s $1.6bn (£870m) takeover of Russell Stover chocolate in the US last year should have given the market a hint. It seemed a massive price for a company of which few outside the US had ever heard.

The fact is, as evidenced by my own memories of the 70s, Thorntons is a brand far stronger than its management.

Ferrero, on the other hand, is a slick, global management machine which should be able to fix the company’s problems here, then tap into its appeal for the luxury “Made in England” export market.

Redgates, that Hamleys of the north that features so highly in my Sheffield reverie, brought down the shutters decades ago.

Ferrero will prevent that happening to Thorntons, and could be the best thing that’s happened to it for years. Sad, though, that it takes a foreigner to do the job.

Goodbye to aggression, hello to negotiation...

 The kingmaker in the Thorntons deal was an activist investor called Crystal Amber. Run by a canny chap called Richard Bernstein, it was one of those which spotted the little-loved company’s potential value to big bidders long before yesterday’s deal, steadily building up its stake before and after the chief executive quit.

Crystal Amber was fairly quiet in the way it behaved during its stakebuilding process, but it clearly wanted a takeover to happen for it to get a return on its 19 per cent stake in the company. Its wish granted, it made a return of £7.4m on the deal, having bought in at an average of 88p a share.

So, following on from Elliott Advisors’ defeat of Katherine Garrett-Cox at Alliance Trust, it’s fair to chalk this one up to a second significant victory for activist shareholders this year.

But don’t be tempted to think this heralds a great advance of US-style shareholder activists forcing management’s hands over here.

Activism only works in a big way when aggressive funds own major stakes in many companies, and where boards refuse to listen to their investors. This remains extremely rare in the UK.

Now, following the defeat of the legendary raider Nelson Peltz in his fight against DuPont chief Ellen Kullman, there’s talk that these activists could be on the run in Wall Street as well.

As corporate adviser Ram Charan points out in Fortune magazine this week, the consolidation of investment cash into fewer and bigger fund management groups makes it harder for activists to build stakes, and means boards have far more powerful individual shareholders to answer to.

In DuPont’s case, BlackRock, Vanguard and State Street each had more than 5 per cent, dwarfing Mr Peltz’s 2.7 per cent. And just look at the size of this trio: BlackRock has $4.7trn under management, Vanguard £3.1trn, State Street $2.5trn. Their combined assets under management have increased nearly fivefold over the past decade.

Big funds are getting more engaged, too. In the US, as here, investors’ cash is flowing into indexed funds, which have to take a weighted stake in every company on Dow Jones.

Without the ability to sell their stakes, these fund managers have to lean on the companies to improve their returns. In other words, they have to get active to beat the market.

Cue a new era of quiet negotiation, instead of activist aggression, on Wall Street.