Mondelez (MDLZ) Acquires Clif Bar for $2.9B, Analyst Sees Deal Providing 'Robust' Synergies

Shares of Mondelez International, Inc. (Nasdaq: MDLZ) rose 1% in pre-open trading on Tuesday after the company announced on Monday a deal to acquire energy bar maker Clif Bar & Company for $2.9 billion, with additional contingent earnout consideration. With the deal, Mondelez adds on-trend brands CLIF, LUNA and CLIF Kid.

Mondelez CEO Dirk Van de Put said the deal furthers the company's ambition "to lead the future of snacking by winning in chocolate, biscuits and baked snacks as we continue to scale our high-growth snack bar business."

The deal is expected to be accretive to the top-line in year two and create cost synergies.

Mizuho analyst John Baumgartner said with $800 million in sales for Clif, the deal works is valued at roughly 3.6x revenue in addition to the undisclosed earn-out. Baumgartner added that while they are modeling a neutral year-one EPS impact with pro forma leverage to ~3.3x from 3x, the synergy potential is "likely robust."

"We est. Clif EBIT margin of ~10% (incl. deal amortization) vs. our MDLZ FY22E 16.6% and North America's 20%. Through 2025, we est. cost synergies equivalent to 8% to 10% of Clif sales (vs. Food avg. of 6-8%) including procurement and logistics benefits," Baumgartner commented. "Similar to the 2018 acquisition of Tate's, we believe the inclusion of Clif products, within MDLZ's U.S. direct store delivery network, is possible following integration. As it pertains to revenue opportunities, we see the potential to leverage the low-carb/high-protein attributes of Grenade in new CLIF products, potential expansion of CLIF into new categories and segments (including ambient/refrigerated/frozen and perhaps through MDLZ's strong licensing programs; similar to brand extensions from KIND), and potential benefits for the female-friendly LUNA from greater resource and attention allocation. Although Clif products are already well distributed across grocery, mass, and convenience outlets, we expect enhanced depth of distribution made possible by MDLZ's sales personnel and retail reach." The analyst has a Buy rating and a $75 price target on Modelez.

BMO Capital analyst Kenneth Zaslow views the deal as strategically sound but said it likely does not have the growth potential associated with General Mills' acquisition of Annies. He notes the Clif deal marks the ninth and largest acquisition under new Modelez management since 2018.

"Margins remain the key long-term growth opportunity, as we would not be surprised if Clif's current margins fall well below that of MDLZ," Zaslow commented. "We expect MDLZ to expand Clif margins to be more in line with that of MDLZ through distribution integration, procurement at scale, and the establishment of revenue growth management strategies." Zaslow reiterated an Outperform rating and $75 price target on Modelez.

The transaction is expected to close in the third quarter of this year.

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