UPDATE 2-Barry Callebaut pays $950mln to feed Asia chocolate boom

* Buying Petra Foods cocoa unit for $950 mln

* May have to raise $300 mln in new equity

* Acquisition price too high - analyst

* Barry Callebaut shares drop 2 pct

ZURICH, Dec 12 (Reuters) - Swiss chocolate maker Barry Callebaut is buying the cocoa business of Singapore's Petra Foods to reduce its dependence on West African raw materials as it expands in emerging markets.

Barry Callebaut was already the world's biggest chocolate maker, but the $950 million cash deal - its largest yet - will make it the biggest processor of cocoa products, too.

The Petra Foods cocoa operation, which makes cocoa liquor, butter and powder, produced revenue of $1.3 billion in 2011. It manufactures and sells cocoa ingredients under the Delfi brand to more than 30 countries and customers including Nestle , Cadbury and the Mars Group.

Barry Callebaut, which provides the food industry with cocoa and chocolate products, coatings and cocoa powders, said the deal is expected to close mid-2013 and will boost sales volume in fast-growing Asia and Latin America to 31 percent of total sales volume from 24 percent now.

It will also add a second strong base for cocoa sourcing and processing in Asia. The supply of cocoa from Indonesia helps to reduce reliance on West Africa, which accounts for 70 percent of global cocoa supply but has suffered from volatility because of conflict in top producer Ivory Coast.

Analysts said that Barry Callebaut had paid a high price for a not particularly profitable business.

"Strategically, the acquisition seems to make sense," Sarasin analyst Patrick Hasenboehler said. "However, the acquisition is not a bargain."

MARKET POTENTIAL

The Petra division had an operating profit margin of 5.2 percent in 2011 compared with Barry's 9 percent. Barry said the deal values the unit at 14 times 2011 enterprise earnings before interest, tax, depreciation and amortisation.

"I would agree its a full price, but I would also agree its worth it," Chief Executive Juergen Steinemann told a conference call for journalists and analysts. "You are buying here market potential ... you are buying a future motor to grow."

The company said that emerging markets were driving annual growth of 2-5 percent in the cocoa powder market because of rising demand for a range of chocolate-flavoured products, including drinks, fillings, pastries and ice cream.

Shares in Barry Callebaut were trading down 2 percent at 922 Swiss francs by 0919 GMT, against a negligible 0.1 percent fall for the European Food and Beverage index. Petra's shares surged as much as 24 percent to a record S$3.40 ($2.78) after a trading halt was lifted.

Barry Callebaut said the deal would be financed by a bridging loan that will be replaced after a year by a combination of equity and debt issuance. The company said it would need to raise $300 million of equity to finance the acquisition.

Chief Financial Officer Victor Balli said the deal would initially lower the group's profitability but would be accretive from the second year. He said that it plans to return group operating profit per tonne to its pre-acquisition level by 2015/16.

The company is forecasting post-acquisition group volume growth of 6-8 percent a year over the next three to four years.

INTEGRATION COSTS

Petra Foods is the largest cocoa products supplier in Asia and makes more than 400 products, including the SilverQueen and Ceres brands popular in Indonesia and the Philippines.

Integrating the Petra Foods unit into Barry Callebaut will result in estimated one-off costs of 10-15 million Swiss francs ($11-16 million) in the first two years, the company said, with an additional one-off transaction cost of 10 million francs.

The proposed deal includes Petra's entire cocoa ingredients business, including seven factories in Malaysia, Indonesia, Thailand, Brazil, Mexico, Germany and France, plus sales offices in Singapore, the Netherlands and the United States.

The business being sold accounts for 75 percent of Petra's group revenue, with the rest coming from its branded consumer unit, which will now source three quarters of its cocoa from Barry Callebaut as part of the deal.

A more concentrated focus on consumer brands will be good for Petra Foods, said Goh Han Peng, an analyst at DMG & Partners Securities.

"Divesting the ingredients business, which is working capital-intensive, will also be positive for the balance sheet," Goh said.

Barry has signed a string of outsourcing deals this year, including one with consumer goods group Unilever to supply 70 percent of its global cocoa and chocolate needs.

Swiss investment bank Credit Suisse advised Barry Callebaut on the transaction.