Mars Inc., the US candy company, agreed to buy Britain’s Hotel Chocolat Group Plc for £534 million ($662 million) and pledged to help the high-end seller of chocolate “puddles, slabs and batons” expand internationally.
The Bounty maker offered 375 pence a share in a deal recommended by the board of the UK company. The cash offer represents a premium of 170% to Hotel Chocolat’s closing price on Wednesday.
Shares of Hotel Chocolat rose to near the offer price in early trading in London on news of a takeover, which offers the biggest premium seen on the London Stock Exchange in 25 years. The valuation is still below a peak of 526 pence a share in October 2021.
Mars said it was prepared to shell out for Hotel Chocolat as the boutique brand’s high-end wares bring a different offering to a company which sells more mass-market products like Snickers, Twix and Maltesers.
Chocolate Foundations
Hotel Chocolat started out in 1987 when co-founders Angus Thirlwell, who dropped out of university to pursue a career in business, and Peter Harris started selling corporate-branded mints. It then moved to selling gourmet chocolates and running chocolate-themed cafes. It owns the Rabot estate and cocoa plantation on Saint Lucia, which can trace its history back 250 years.
“This is the fulfilment of Hotel Chocolat’s destiny as we see it which is to become a leading brand in major markets through reinventing chocolate,” Thirlwell said in a phone interview Thursday. He added that there had been an “extraordinary meeting of minds” with Mars which is one of the largest closely held companies in the US.
Thirlwell and Harris both stand to make around £140 million from the deal, although Thirlwell plans to invest 80% of his shares and those held in his family trust back into the business. Harris is retiring and selling the majority of his shares and will reinvest in the business as well but “to a smaller degree,” according to Thirlwell.
There is currently about 70% shareholder support for the takeover which legally requires a 75% approval threshold to pass. “Nothing is going to stand in the way of us doing this deal,” said Thirlwell, who added that the valuation is “very respectable and gives huge belief in the future prospects of the brand.”
Mars first approached Hotel Chocolat a few months ago and since then the two companies have been in talks. Mars has long had its eye on the brand because of its unique proposition, said Andrew Clarke, global president of Mars Snacking by phone. The US confectionery giant is committed to keeping the company “special” while helping it grow, Clarke said, adding it will keep investing in opening more Hotel Chocolat stores in the UK.
Tasting Clubs
Known for its chocolate with higher cocoa and lower sugar content, Hotel Chocolat has a network of 131 stores in the UK and 21 in Japan with a licensing partner, as well as an online business.
It has gained a loyal customer base in part through initiatives like offering a “tasting club” for thousands of members who receive chocolate boxes every month and rate its products. It has also driven sales by selling products like its “Velvetizer” device for making hot chocolate drinks.
Hotel Chocolat hasn’t been immune, however, to inflationary pressures affecting consumer demand and sales fell 10% in the 52 weeks to July 2, as it swung to an underlying loss. The chocolate maker has also had to cope with rising input costs, particularly higher cocoa and sugar prices which have been trading at record highs recently. That has pressured the share price.
Hotel Chocolat said the disappointing results reflected a year of “intensive re-shaping” to deal with its previous fast growth, adding that remaining independent would require raising capital to expand.
The offer from Mars is also a sign that the cost-of-living crisis hasn’t stopped consumer goods companies focusing on selling more expensive brands.
Mars has bought smaller, entrepreneurial brands before, such as KIND, Nature’s Bakery and Tru Fru. The company has operated in the US since 1932 and employs about 10,000 people.
(Updates with Hotel Chocolat and Mars comments from interview.)
