Venkatachari Jagannathan 19 January 2004

Chennai: The news of Murugappa group''s decision to exit its confectionery business was announced on 16 January 2003 — the eve of the group''s 50th anniversary — and a day after the Pongal festival celebrations in South India.

Signing a shareholder agreement with Lotte Confectionery Company of Korea, the Muruguppa group has parted with 60.39 per cent holding of the Rs.3.77 crore equity in Parry''s Confectionery Ltd for Rs.64.47 crore. This works out to Rs.283.12 per share. Parry''s Confectionery was controlled through Muruguppa group companies EID Parry (28.57 per cent shareholding), Santhanalakshmi Investments (15.04 per cent shareholding) with other group entities and the promoter''s family holding 13.66 per cent and 3.12 per cent respectively.

"It is a good move for the shareholders and the group that it is consolidating its business portfolio," remarks M V Subbiah, chairman, Parry''s Confectionery.

In a changed market environment, the group found it difficult to pump in money continuously to build and sustain the confectionery brands and hence decided to exit the business. However, EID Parry as the owner of the various popular brands — Lacto King, Coffee Bite, Coconut Punch, Madras Café ,etc, will get a royalty for five years from Parry''s Confectionery and a board membership.

Parry''s Confectionery closed the first six months of this fiscal with sales of Rs.46.81 crore and a net loss of Rs.4 lakh. Last fiscal, the company posted a turnover of Rs.95.13 crore and a net loss of Rs.1.18 crore.

According to Ardeshir Contractor, managing director-corporate finance, KPMG India, advisors to the deal, the confectionery brands and the four plants were not valued separately while arriving at the sale price.

Lotte offer lots of sweet things Lotte Confectionery will soon make an open offer, as required by law, to acquire 20 per cent stake (7, 54,258 shares of Rs.10 each) in Parry''s Confectionery at Rs.283.25 per share. The total outside holdings in the company is 39.61 per cent (14, 93,900 shares).

Till all the legal formalities are concluded, Parry''s Confectionery will continue with its existing name. Subsequently, it may acquire a new name reflecting the Korean ownership.

Speaking about their foray into the Indian market Soo Kil Han, president, Lotte Confectionery says: "We have been pursuing opportunities overseas including India. Sometime last year we started talking to Murugappa group and now we have finalised the deal."

Three years ago the $ 900 million Lotte Confectionery had established a liaison office in Mumbai.

The Korean company has a large portfolio of, candies, chocolates, biscuits, snacks, ice cream and health care products and commands a hefty 71 per cent share of the Korean chewing gum market. Its brand Xylitol alone earns around $150 million in sales.

Lotte Confectionery has over 500 products, which are manufactured at its five plants in Korea and exported to 70 countries. Outside Korea, Lotte Confectionery has plants in China, Vietnam and the Philippines. With its latest acquisition, India will be added to the Korean company''s production map.

The Lotte group has a presence in food and beverages, distribution, tourism, heavy chemicals, construction and machinery, information communication and electronics and trading.

According to the Korean company officials, the company will leverage Parry''s Confectionery''s existing distribution network.