Ferrero International SA, the Italian confectioner, just bit off another piece of the U.S. candy market, and it is already thinking about taking a much bigger bite.
Ferrero, which makes Nutella and Tic Tacs, said this week that it had agreed to buy Lemonheads and RedHots maker Ferrara Candy Co. from private-equity owner L Catterton. It didn't disclose terms but a person familiar with the deal said Ferrero paid about $1.3 billion.
Ferrero, the world's fourth-largest confectioner by market share, is also considering a bid to buy Nestlé SA's U.S. candy business, according to people familiar with the bidding.
The business, which Nestlé put up for sale earlier this year, includes well-known candy bar brands such as Butterfinger and Baby Ruth and had sales of $922 million last year.
The unit has attracted a number of bids, valuing it between $2 billion and $2.5 billion, according to a person familiar with the process. Apart from Ferrero, Hershey Co. and private-equity firms are interested, according to people familiar with the matter. Brynwood Partners is expected to be among those, according to one of these people. Brynwood has previously bought other U.S. candy brands from Nestlé, including Turtles chocolates and Flips chocolate-covered pretzels.
Mars Inc., Hershey, Mondelez International Inc. and Nestlé are the top four confectioners in the U.S. by market share, respectively, according to Euromonitor. Ferrero is No. 6 in the U.S. Combined with Ferrara and Nestlé's business, it would move up to No. 3, though still far behind Mars and Hershey.
Mondelez sought to boost its own U.S. standing when it unsuccessfully bid for Hershey last year. It is unclear if Mondelez or Mars is interested in the Nestlé brands.
On Thursday, officials at Nestlé said it expected the sale of the unit, which went on the block in June, to be wrapped up by the end of the year.
A move on Nestlé's U.S. business would be the biggest in a series of much smaller acquisitions by Ferrero, a private, family-controlled firm with about $12 billion in revenue last year. Earlier this year, it bought Fannie May Confections Brands. Two years ago, it snapped up U.K. chocolate maker Thornton PLC.
Founded in 1946 in the small northern Italian town of Alba, Ferrero has followed a dual-track strategy: It has aggressively pursued acquisitions, while also trying to stoke organic growth with new products.
Last month, the company introduced in Italy a cookie version of its Kinder Surprise egg, a thin chocolate egg with a small plastic toy inside. It is sold across Europe, but not in the U.S. Earlier this year, it began testing a Tic Tac chewing gum in its home market. If successful, Ferrero will roll out the two products in other countries, including the U.S., according to a person familiar with the plans.
Ferrero is looking to double down on the U.S. candy industry at a time when sugar has come under siege by consumers, who are opting for snacks they view as healthier like fruit-and-nut bars.
Nestlé and Hershey have touted technology they say will allow them to reduce sugar in chocolate by up to 40% by altering the structure of the sugar particles to taste sweeter.
Food and beverage companies, even in indulgent categories, have "no choice but to respond to the growing consumer concerns of the consumption of added sugar," said Rabobank analyst Nicholas Fereday.
Ferrara, the U.S. company, traces its roots back to 1908, when it opened as a pastry shop in Chicago's Little Italy neighborhood. It went on to expand into hard candies, including candy-coated almonds, Lemonheads, RedHots and Atomic FireBalls. In 2012, after the founder's son died, Ferrara merged with Farley's & Sathers Candy Co., owned by L Catterton.
L Catterton expanded the company's profitability and revenue by investing in new manufacturing equipment, advertising and new products, like chewy Lemonheads and organic gummy bears. Executives previously said they planned to expand annual sales to $2 billion by 2020 from around $1 billion currently.
Last year, L Catterton considered taking Ferrara public and shopped it around to potential buyers, but it didn't reach a deal, according to a person familiar with the company.
--Ben Dummett contributed to this article.
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(END) Dow Jones Newswires
October 19, 2017 19:50 ET (23:50 GMT)