Is Mondelez International’s $3 Billion Bite Into Energy Bars Worth It?

If Mondelez International (MDLZ) wasn’t a player in the global energy bar business, it is now. 

On June 20, the maker of Cadbury chocolate bars, Oreo cookies, Ritz crackers, Halls cough drops, Philadelphia cream cheese, Trident gum, and many other brands announced that it would pay $2.9-billion plus potential earnouts to acquire Clif Bar & Company, the maker of CLIF, CLIF Kid, and LUNA energy bars, the number one brand in the U.S. protein and energy bar market. 

While CLIF bars are a known and popular commodity with Americans, the price paid isn’t exactly chump change. It’s a hefty price to pay. I’ll consider the pros and cons of Mondelez’s aggressive move. Ultimately, I’ll decide if it was worth it.  

Mondelez Now Owns the #1 Brand In a Big Category

The global snack bar category is estimated to be worth $16 billion in annual sales, with revenues growing at a brisk 5% per year. Even better, the protein and energy segment is growing at 9% annually. 

As for CLIF Bar, its sales have grown by 9% compounded annually over the past decade. Mondelez is paying a reasonable 3.6x sales for this growth. The opportunity to buy the U.S. leader in the protein and energy segment and grow it into a billion-dollar brand was too attractive to pass up. 

“This transaction further advances our ambition to lead the future of snacking by winning in chocolate, biscuits and baked snacks as we continue to scale our high-growth snack bar business,” Mondelez International CEO Dirk Van de Put stated in its press release. 

Over the past four years, the company added nine brands to its roster, including the purchase of Ricolino and Chipita S.A. in 2022. Clif Bar won’t be the last. It’s likely to continue adding solid brands to its product lineup. Brands that have above-average growth potential like CLIF Bar. 

These nine acquisitions, including CLIF Bar, have added $2.8 billion in annual revenue. Based on an operating margin of 16.3%, these nine brands have resulted in almost $500 million in additional operating profits, and they’re still growing. 

Interestingly, Quaker Oats offered to buy CLIF Bar in 2000 for $120 million, or approximately 3x its sales that year, so the multiple has gone up slightly, and so has the dollar value. 

In 2020, Mars acquired Kind snack bars for $5.0 billion, or 3.3x its annual sales, so Mondelez is paying a slightly higher multiple for a smaller company, but it does get a leader in the segment.  

In 2021, CLIF Bar CEO Sally Grimes set a goal for $2 billion in annual revenue. Under Mondelez’s leadership and distribution, it likely will get there in the next decade. 

The move makes sense given its plan to dominate the chocolate, biscuits, and baked snacks categories. 

The Downside of the CLIF Bar Acquisition

According to Barron’s, Mondelez will pay for the nearly $3 billion acquisition with new debt, selling off some of its non-essential brands and monetizing its coffee assets.

At the end of March, Mondelez had cash and cash equivalents of $1.95 billion, long-term debt of $18.3 billion, and net debt of $16.35 billion. In the first quarter, it issued $2 billion of debt at interest rates between 2.125% and 3.0%. It paid $168 million in interest during Q1 2022, down from $218 million a year earlier. 

Assuming it adds $2 billion in debt to pay for CLIF Bar, it will have more than $22 billion if you include its operating leases and current portion of long-term debt. That’s almost 30% of its market cap, which isn’t too much of a burden but is something to consider given rising interest rates and a looming recession.

As Stifel points out, CLIF Bar’s growth has slowed in recent years. While it compounded by 9% over the past decade, it was more like 1% growth in the past three years, so it’s clear Mondelez is paying for the brand’s strong name recognition with consumers. 

The company’s trailing 12-month free cash flow is $3.44 billion. That’s a free cash flow yield of 4.1%. I consider anything between 4% and 8% reasonably priced, so its shares are nearing full value.  

The Bottom Line

Mondelez wants to generate 90% of its revenue from chocolate, biscuits, and baked snacks. This acquisition bumps up its trailing 12-month revenue by 2.7% to a little more than $30 billion.

While the acquisition adds a recognizable brand name in a growing segment of the snacks category, it comes at a hefty cost. That might not be a problem if the future wasn’t so unclear from an economic standpoint.

Investors might want to hold off buying MDLZ stock until they can ascertain whether CLIF Bar throws off enough cash to improve its free cash flow yield and margin. Otherwise, Mondelez is paying nearly $3 billion for little growth or profitability. 

If you own Mondelez, I wouldn’t sell your stock. However, for those that don't own it, I don’t think this acquisition moves the needle enough to justify spending your dry powder at a time when the markets still are trending lower. 

I would, however, put it on your watchlist. You could get a much better entry point over the second half of 2022. 

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