Shares of Chicago-based Tootsie Roll Industries Inc. (TR) – a seller of chewy chocolates and confectionery products in the U.S., Canada and Mexico – rallied more than 2.5% after rumors made rounds that the candy maker is possibly a takeover target. The death of the long time CEO Melvin Gordon sparked such rumors.
Meanwhile, Gordon’s 83-year-old widow, Ellen Gordon, succeeded him as the CEO. She also happens to be the largest Tootsie Roll shareholder, and the Gordon family holds a controlling stake in the company.
Over the past decade, the company acquired well-known candy brands, thus adding similarly profitable companies to its portfolio. The takeovers include Charms Blow Pops, Sugar Babies caramels, Junior Mints and DOTS gumdrops in addition to the Chocolate Chews that made the company popular. In fact, Bloomberg reports suggest that Tootsie Roll is valued at about 20 times its trailing 12-month earnings before interest, taxes, depreciation and amortization (EBITDA).
Tootsie Roll will be an attractive proposition for chocolate makers like The Hershey Company (HSY), Nestlé S.A. (NSRGY) or Mars Inc. as it would likely help expand the brand globally. Tootsie Roll’s popularity will considerably boost revenues for these chocolate makers.
While Nestle has been recently focusing more on healthy product offerings, it still commands a substantial market share in the confectionery business in the U.S. Tootsie Roll, 90% of its whose revenues are derived from the U.S., would certainly provide an added boost to Nestle’s chocolate business.
However, despite such rumors and a wave of acquisitions in the U.S. confectionery industry like Mars Inc. acquiring Wm. Wrigley Jr. Co. and Kraft Foods Group, Inc. (KRFT) buying Cadbury in 2010, the Chicago-based Tootsie Roll has so far managed to avoid a merger.
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