United Biscuits, the McVitie's and KP nuts company, signalled it was prepared to entertain offers for Terry's 10 days ago.
UB's debt as a proportion of net assets was approaching 100 per cent. Yesterday's deal will reduce borrowings to about pounds 325m, or about 50 per cent of net assets.
The sale is reminiscent of the purchase by the Swiss group Nestle of Rowntree for pounds 2.55bn in 1988. Both Terry's and Rowntree are based in York but the change of ownership of Terry's promises to be calmer than the sometimes acrimonious battle for Rowntree.
Yesterday Victor Botterill, the chief shop steward at Terry's, said: 'We've got all the facilities and now all we need is investment. The feedback we're getting is that a lot of investment is ready to be put in. We certainly hope so.'
George Tutill, Mr Botterill's union counterpart at Rowntree, said: 'Philip Morris will be investing heavily in the business. They won't want to be left behind.'
As one of 3,000 GMB union members at Rowntree, Mr Tutill dressed up as a KitKat to protest outside Parliament during the Nestle bid talks. Now he says: 'Nestle have been an honest broker and they've shown real commitment to York.'
Terry's made trading profits of pounds 14.3m in 1992. Analysts believe it could have fetched pounds 250m, but the pounds 220m price is none the less regarded as a good one for UB. It is equivalent to 23 times after-tax profits.
A spokesman for Kraft, Philip Morris's European subsidiary, said it would conduct a review of the Terry's business before it decided what to do. It will, however, beef up Kraft's chocolate operations, which currently comprise Suchard of France and the Scandinavian empire of Freia Marabou.
Although Terry's is a well- known brand its share of the British chocolate market is only 3 per cent. The market is dominated by Mars, Nestle's Rowntree and Cadbury.
UB has been acquiring businesses aggressively this year. It has bought Bake-Line, a US bakery business, and Derwent Valley Foods, which makes the Phileas Fogg exotic crisps.
UB shares fell 13p to close at 379p yesterday, partly because the market fears it will overstretch itself again, possibly with the purchase of Royal Brands, a Spanish snack-food business.
(Photograph omitted)Reuse content