United Biscuits pays 50m pounds for US company

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The Independent Online
UNITED Biscuits, the McVitie's and KP nuts company, has spent dollars 75m ( pounds 50m) buying Bake-Line, an American biscuit maker for own-brand labels.

The acquisition is the second large purhase for UB in two months. In November it spent pounds 180m on Coca-Cola Amatil, the Australian-based snack food business.

The deal will push UB's gearing up by 10 per cent, to 67 per cent. Gearing rises partly because borrowings increase but shareholders' funds are also depleted by the goodwill write-off.

John Warren, finance director, said the board was 'not happy, but comfortable with the level of debt'.

UB said the logic of the latest deal lay in linking Bake-Line to Keebler, its US manufacturer of branded snacks.

Sir Robert Clarke, the UB chairman knighted in the New Year Honours, said: 'Bake-Line's strong market position and thorough knowledge of the own-label sector will complement Keebler's strength.'

Keebler's recent history, however, has been troubled. Poor group interim results last year were blamed on the US subsidiary. UB sacrificed Keebler's profit margins to increase market share. As a result, Keebler's operating profits fell from pounds 30m to pounds 12m and depressed overall pre- tax profits to pounds 70m from pounds 84m.

The policy of aggressive pricing failed to win business in the first half, but fared better in the second six months. John Warren, finance director, said the profit margins at Bake-Line were 7 per cent, 'a long way ahead of Keebler'.

Bake-Line commands a quarter of the dollars 300m ( pounds 200m) US market for own-label biscuits. The non- branded sector is only 13 per cent of the whole, but it is growing.

However, Mr Warren said that much of the growth was due to consumers trading down to cheaper products in the recession, and that further advances may be limited by the nascent US recovery.

Mr Warren said entry to the own-label biscuit market provided by Bake-Line enabled UB to make own-label snacks as well, using spare production capacity at Keebler.

The cash consideration is 23 times Bake-Line's after-tax profits. Coca-Cola Amatil was won for 19 times after-tax earnings.

Bake-Line increased sales in the year to June 1992 from dollars 55m to dollars 74m and operating profits from dollars 3.7m to dollars 5.2m. Profits for the first quarter of the new financial year were reported to be up 20 per cent.

The shares took the news well. In a falling market, UB shares were up 2p at 364p.

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