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Lindt Buys Russell Stover to Move Up U.S. Chocolate Rankings (2)

July 14 (Bloomberg) -- Lindt & Spruengli AG, the world’s largest producer of premium chocolate, agreed to acquire Russell Stover Candies Inc. to become the third-biggest chocolate producer in North America.

The purchase is the biggest in the company’s history, Kilchberg, Switzerland-based Lindt said in a statement today, without disclosing the price. Russell Stover will add annual sales of about $500 million, taking Lindt’s revenue in North America beyond $1.5 billion in 2015, it said.

Russell Stover is the largest U.S. maker of boxed chocolate whose products are a regular feature of candy stores across the U.S. The acquisition of the closely held company will give Lindt 7.9 percent of the North American chocolate market, according to Bloomberg Industries data, propelling it past Nestle SA. The company will be a distant third behind Hershey Co. and Mars Inc., which together control more than half of the market.

“The takeover certainly makes sense for Lindt, as it really strengthens their position in the U.S.,” Jean-Philippe Bertschy, an analyst at Bank Vontobel AG, said by phone. Russell Stover’s presence in the central U.S. will complement Lindt’s strength on the East and West Coasts, he said.

Lindt shares rose as much as 1.6 percent to 55,595 Swiss francs in Zurich trading, the highest price since at least October 1989. The stock was up 1.4 percent at 11:28 a.m., valuing the company at 11.9 billion francs ($13.4 billion).

‘Positive Contribution’

The acquisition will be funded through net cash resources and bank loans, Lindt said. It will make a “strong positive contribution” to earnings per share from 2015.

Russell Stover is being acquired from the family of Lou Ward, who bought the company in 1960. The Financial Times reported July 12 that a purchase price of $1.4 billion was under discussion. Lindt was advised by Credit Suisse Group AG.

Founded by Clara and Russell Stover from their Denver home in 1923, the Kansas City, Missouri-based company sells products from almost 40 company-owned shops throughout the U.S. Its chocolates can also be found at more than 70,000 drugstores, card and gift shops, grocery outlets and department stores.

In addition to its eponymous brand, the company also makes Whitman’s and Pangburn’s candies.

The price of the deal is probably more than 20 times earnings before interest, tax, depreciation and amortization, which “is not a bargain” compared with Lindt’s ratio of enterprise value to Ebitda of 16.6 times, Michael Romer, an analyst at J. Safra Sarasin, wrote in a note to investors.

Lindt may be able to increase its share of the U.S. chocolate market to 10 percent within the next three years, Chief Executive Officer Ernst Tanner said in a phone interview.

Staying Independent

The Russell Stover purchase will produce similar benefits to when the Swiss company acquired California-based Ghirardelli Chocolate Co. in 1998, the CEO said.

“We proved with the integration of Ghirardelli back in 1998 that we are able to integrate a U.S. company,” Tanner said. “The Ward family acknowledged that and that might have played an important part.”

Lindt wants to remain an independent Swiss company, the CEO said. “We are better off as an independent company -- in Switzerland, Europe and also in the U.S.,” he said.

Separately, Lindt said first-half sales rose 6 percent to 1.2 billion Swiss francs, boosted by the addition of new products. The company maintained its forecast for growth of 6 to 8 percent for the year on a so-called organic basis.

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