This week, struggling chocolate group Thornton’s was made an offer it couldn’t refuse by Italian chocolatier Ferrero. It was music to shareholders’ ears. This is a company struggling to make half the profits it did back in the 1980s when it was floated on the stock exchange. The company has unkindly been branded the ‘Woolies of the chocolate world’.
The stock raced up some 43% upon on the announcement. That’s a bit of a get-out for long-suffering stockholders. Alas, for Thornton’s workforce, the news isn’t quite as good – at least not on the retail side of things, where it looks like a winding down of activities is most likely. The good news, however is that on the manufacturing side, it could all be a very different story.
Perhaps ironically, Britain’s precarious position within the EU right now could have been an important factor in this deal. And I think it could continue to be very good for us.
Europe’s multinationals are getting very nervous
You would be forgiven for thinking that the timing of this deal is somewhat odd. After all, Britain’s place in Europe is currently up for a major renegotiation, the outcome of which will undoubtedly have a bearing on whether the British public decides to stay or go. So why would Ferrero make this gamble right now?
Well, it strikes me that this is a cunning tactical move. One that will give Ferrero a much stronger negotiating position of its own.
You see, just last week, the Greek prime minster, Alexis Tsipras, came up with the idea that to balance the books, they’ll raise taxes on Greek businesses, and whack up VAT too (essentially a tax on business’s goods and services).
Italy has its own fiscal skeletons too. Undoubtedly, Ferrero is looking on with horror. Will the government come after its own wealthy companies to help balance Italy’s books?
You see, Ferrero is a major player in the international confectionary market. The firm is much bigger than its Ferrero Rocher brand of choccies for diplomats with “exquisite taste”. In fact, the company is one of the biggest confectioners still in private hands. This is the firm behind Kinder, Nutella, Tic Tacs, and many other big names.
It was established during the war by pastry chef Pietro Ferrero, who invented a way of stringing out chocolate (cocoa was in short supply) through innovative use of hazelnuts, carob powder and even acorns. This was classic wartime ‘make-do’ stuff.
It goes to show the kind of resourcefulness that I venture is still instilled in this family-run business. If the Italian government wants to continue to inflict higher taxes on the profits Ferrero makes on its substantial UK sales, then Ferrero can simply say: “Fine, we’ll shift production to our Thornton’s subsidiary in the UK – it’s cheaper there anyway. And the UK government is currently lowering corporation tax!”
So the UK’s standoffishness toward Europe might not be such a bad thing after all. Regardless of whether Britain leaves or stays, there are positives for Ferrero with this deal.
Companies won’t stand for the European bulldozer approach
Ferrero is typical of the sort of dynastic companies of yore. Unlike many publicly listed groups, these guys fight tooth and nail to protect themselves from overbearing regulators, as well as the taxman.
With the takeover of Thornton’s, Ferrero is buying optionality – a bargaining chip. For a multi-billion dollar company, the £112m it’s shelling out on Thorntons is peanuts (or should that be hazelnuts… ahem.)
Ferrero has been pretty explicit. It doesn’t much care for the retail operations. Thorntons’ proposition has been dicey for quite some time. As with many suppliers, it’s caught up in the vicious supermarket price-wars. And on the high street, things are hardly much better.
But whether the UK stays in or out, there are benefits to Ferrero here. In the case of ‘Brexit’, Ferrero will have the option to shift work to the UK, thus avoiding any obstacles a spurned EU may wish to foist upon British trade.
Personally, I think there’s a lot of scaremongering in this area. I can’t see why the continentals would want to jeopardise one of their biggest export markets – after all, the UK imports more from Europe than we sell to them. But then again, you can’t rule anything out when it comes to politicians.
Should Britain stay within Europe, on the other hand, then Ferrero will have a British subsidiary, within which it can hive off profitable businesses, safely tucked away from the ravishes of the Italian taxman. If it comes to it, it could shift loads of work over to Britain’s shores.
Among others, Ireland has been hugely successful in luring big foreign conglomerates. You may argue that lowering corporation tax to attract such business is a ‘race to the bottom’. Well, be that as it may, in the short run, it can be a massive wealth generator for the countries with the most attractive proposition.
Just as Pietro Ferrero found his fortune in the midst of adversity, so his successors continue forge their own path, in spite of what government may throw at them.
So with the UK government’s commitment to lowering corporation tax, and with the possibility of winning concessions against the European bulldozer, could we see more European multi-nationals looking for a toehold on the more business friendly UK shores?