Kraft signs chocolate deal with Barry Callebaut

By Reuters
Posted Sep. 9, 2010 at 6:27 a.m.

Barry Callebaut AG said Thursday it has signed a supply contract with Kraft Foods Inc., a deal that will increase the Zurich-based chocolate company’s global reach and spark heavy investment.

Barry Callebaut, a leading supplier of chocolate fillings and cocoa products for the food industry, will invest around $65 million over the next two years to increase production capacity in the U.S., Canada, the Ivory Coast, Malaysia and in Europe. The pact will more than double Barry Callebaut’s existing business with Kraft Foods.

The parties didn’t disclose financial details.

Analysts welcomed the agreement, which is expected to lead to additional chocolate volumes of 50,000 to 100,000 tons delivered annually to Kraft, representing 4%-8% of Barry’s total output. This compares with an estimated 800,000 tons of chocolate produced by Kraft.

“This is a very good deal and one we have been expecting for a while, given that Barry is the biggest outsourcer in town and Kraft needs to retool its supply chain after its takeover of Cadbury,” Kepler analyst Jon Cox said.

He reiterated a buy rating on the stock.

Vontobel analyst Jean-Philippe Bertschy said the arrangement may accelerate Barry Callebaut’s entry into Asian markets such as India, traditionally a stronghold of Cadbury.

The share surged on the news, gaining 5.8 percent on the Swiss bourse in a slightly lower general market.

The Kraft deal follows similar contracts between Barry Callebaut and global confectionary heavyweights such as Hershey Co. and Nestle S.A. concluded in the past few years.

Global confectioners such as Mars Inc. or Kraft still produce at least 70% in-house but many are looking to further outsource production, according to Zuercher Kantonalbank.

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