Analysis Entrepreneurship
Unwanted ice production welcomed by investors
The ice production seems to be more and more a topic for private investors. Both large food giants and smaller dairy companies put their ice divisions up for sale. They want to get rid of it, but each for different reasons.
Last spring, multinational Unilever made headlines with the news that it wants to get rid of the ice division. The owner of brands like Magnum, Ben & Jerry's, and Hertogh ice is one of the largest ice producers in the world and could reportedly fetch around €18 billion with the sale of the ice division, as reported by Bloomberg.
Low margins
The expected buyer is not another multinational with big ambitions, but a 'private equity fund'. The name of CVC Partners is mentioned the most, but other investors are also said to still be in the running.
Unilever does not want to lose the ice division because the business is unprofitable, but because a single-digit return is not enough for the company. It wants to focus on activities with returns in the double digits before the comma.
In the pursuit of higher earnings, Unilever previously divested its margarine activities - once the foundation of the company - to private investor KKR. The latter established this division independently under the name of Upfield, known for the now banned brand Roombeter.
Major competitor Nestlé does not seem to be participating in the slimming down process that Unilever has initiated, but that is not entirely true. Nestlé actually began to partially divest its ice activities much earlier. In 2015, it entered into a joint venture with the French investment fund Froneri. Each of them has an estimated €10 billion in the ice business, owning brands such as Schöller, Möwenpick, and (partially) Häagen-Dazs. However, Nestlé seems to be satisfied with this situation for the time being.
Burden for DMK
Pure dairy companies are no longer often owners of ice divisions. It used to be different, but they have almost all been divested, sold. However, the German DMK and the Belgian Milcobel are exceptions.
DMK has been struggling with its ice activities for years. The cooperative dairy producer has undergone several restructurings and other adjustments in the ice division since the company was established in 2010, acquiring and selling parts in order to be able to write stable black figures. In recent years, it also wanted to sell the business unit, but a last attempt to do so failed earlier this year. In May, the top management then appointed a new director, to continue on its own. With a turnover of only about €140 million, the ice division is not the easiest business unit to sell.
Milcobel steps out
The Belgian Milcobel owns a stronger card with its subsidiary Ysco. Ysco is a producer with a strong position in the production of private-label ice, with an annual turnover between €350 and €400 million. The company is also quite stable in profitability and has performed better in terms of returns in recent years than the parent company. Selling was therefore not a 'must'. Nevertheless, Milcobel decided to sell Ysco to private investors.
It mentioned that this would allow it to increase the focus on dairy production and could also use part of the ice proceeds for that purpose. Meanwhile, the question remains what price Milcobel pays for the sale of the ice division. Unlike DMK's ice division, Ysco is not a problem child, and Milcobel is not like Unilever, turning up its nose at the returns from the subsidiary. With the sale of Ysco, the annual earnings plus a third of the turnover also disappear.
For the private equity funds, however, it doesn't matter. They do their own thing with the unwanted ice factories, and apparently, it yields enough return for them to quietly continue.
