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IAWS, Hiestand Merger: A Recipe for Success?

Irish baker IAWS is buying Swiss peer Hiestand in a deal worth around 4 billion Swiss francs ($3.93 billion) to form one of the world's biggest baked good companies.

IAWS said on Monday it was doubling its holding in Hiestand to 64 percent by buying a stake from Lion Capital for 12.7 million new IAWS shares plus 30 million euros in cash, subject to anti-trust clearance.

IAWS will have to make a public offer to the remaining Hiestand shareholders.

The bid values Hiestand at a premium of around 11 percent, based on Friday's closing prices, according to Reuters calculations.

IAWS and Hiestand will create a new company called ARYZTA, which is likely to have a market capitalization of around 4 billion Swiss francs ($3.9 billion), the two companies said in a joint statement.

IAWS makes Cuisine de France, Delice de France and Coup de Pates breads and pastries and owns U.S. bakery brands Otis Spunkmeyer and La Brea in the United States, while Hiestand is famous for its croissants throughout Switzerland.

Shares in IAWS were trading 4.2 percent higher at 16.860 euros, while Hiestand shares were down 4.4 percent at 1,915 Swiss francs as concerns about the conditions of the deal for minority shareholders weighed.

"We want more clarity on why, at first glance, it appears Lion Capital will be getting more for its shares than minorities," Landsbanki Kepler analyst Jon Cox said.

Earnings Growth

The new group will apply for listings in Switzerland and Ireland and will be led by the chief executive of IAWS.

"We expect to be delivering double-digit earnings growth and we expect that we ought to be able to double the earnings base of this business over a five-year period," IAWS Chief Executive Owen Killian told Reuters when asked about growth after the takeover.

Markets have frequently speculated that IAWS could buy Hiestand and analysts said the move made sense.

"The deal offers strong earnings momentum from the combined entity given their respective earnings growth trajectories, the strategic fit of the combined businesses from a product, geography and management perspective," NCB analyst Paul Meade said.

"The deal significantly reduces the risk to earnings from dollar and sterling exposure for IAWS shareholders," he said.

IAWS will own 83.3 percent of ARYZTA, while Lion Capital will hold an 8 percent stake and Hiestand shareholders will have an 8.7 percent holding in the new company.

The exchange ratios for the merger would be one ARYZTA share for every two IAWS shares and 36 ARYZTA shares for every one Hiestand share, the companies said.

The merger is expected to be completed in the third quarter of this year, the statement said.

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