Acquisitions and Divestitures

9 Months Ended

Sep. 30, 2023

Business Combination and Asset Acquisition [Abstract]

Note 2. Acquisitions and Divestitures

Acquisitions

Ricolino

On November 1, 2022, we acquired 100% of the equity of Grupo Bimbo's confectionery business, Ricolino, located primarily in Mexico. The acquisition of Ricolino builds on our continued prioritization of fast-growing snacking segments in key geographies. The cash consideration paid for Ricolino totaled $26 billion Mexican pesos ($1.3 billion), net of cash received.

We are working to complete the valuation of assets acquired and liabilities assumed and have recorded a preliminary purchase price allocation of:



	(in millions)
Cash	$	22
Receivables	86
Inventory	70
Other current assets	3
Property, plant and equipment	144
Operating leases right of use assets	23

Definite-life intangible assets	218
Indefinite-life intangible assets	339
Goodwill	717
Other assets	3
Assets acquired	$	1,625
Current liabilities	182
Deferred tax liability	76
Operating lease liabilities	23
Other liabilities	14
Total purchase price	$	1,330
Less: cash received	(22)
Net Cash Paid	$	1,308

Within identifiable intangible assets, we allocated $339 million to trade names, which have an indefinite life. The fair value for the Ricolino, Dulces Vero, LaCorona and Coronado trade names were determined using the Relief from Royalty method, a form of the income approach, at the acquisition date. The fair value measurement of indefinite-life intangible assets are based on significant unobservable inputs, and thus represent Level 3 inputs. Significant assumptions used in assessing the fair values of intangible assets include estimates of future sales, discount and royalty rates.

Goodwill was determined as the excess of the purchase price over the fair value of the net assets acquired and arises principally as a result of expansion opportunities and synergies across both new and legacy product categories in Mexico. None of the goodwill recognized is expected to be deductible for income tax purposes. All of the goodwill was assigned to the Latin America operating segment.

Ricolino added incremental net revenues of $180 million during the three months and $506 million during the nine months ended September 30, 2023, and operating income of $15 million during the three months and $31 million during the nine months ended September 30, 2023. We incurred acquisition integration costs of $14 million during the three months and $30 million during the nine months ended September 30, 2023. We also incurred during the three and nine months ended September 30, 2022, acquisition integration costs of $7 million in preparation for the acquisition. We incurred $1 million of acquisition-related costs during the nine months ended September 30, 2022.

Clif Bar

On August 1, 2022, we acquired 100% of the equity of Clif Bar & Company (“Clif Bar”), a leading U.S. maker of

nutritious energy bars with organic ingredients. The acquisition expands our global snack bar business and complements our refrigerated snacking and performance nutrition bar portfolios. The total cash payment of $2.9 billion includes purchase price consideration of $2.6 billion, net of cash received, and one-time compensation expense of $0.3 billion related to the buyout of the non-vested employee stock ownership plan ("ESOP") shares. This compensation expense is considered an acquisition-related cost. The acquisition of Clif Bar includes a contingent consideration arrangement that may require us to pay additional consideration to the sellers for achieving certain revenue and earnings targets in 2025 and 2026 that exceed our base financial projections for the business implied in the upfront purchase price. The possible payments range from zero to a maximum total of $2.4 billion, with higher payouts requiring the achievement of targets that generate rates of returns in excess of the base financial projections. The estimated fair value of the contingent consideration obligation at the acquisition date was $440 million determined using a Monte Carlo simulation. Significant assumptions used in assessing the fair value of the liability include financial projections for net revenue, gross profit, and earnings before interest, tax, depreciation and amortization ("EBITDA"), as well as discount and volatility rates.

We have completed the valuation of assets acquired and liabilities assumed and have recorded a purchase price allocation of:



	(in millions)
Cash	$	99
Receivables	76
Inventory	123
Other current assets	9
Property, plant and equipment	186
Operating lease right-of-use assets	22
Deferred tax assets	107

Definite-life intangible assets	200
Indefinite-life intangible assets	1,450
Goodwill	988
Other assets	11
Assets acquired	$	3,271
Current liabilities	159

Contingent consideration	440
Other liabilities	15
Total purchase price	$	2,657
Less: cash received	(99)
Net Cash Paid	$	2,558

Within identifiable intangible assets, we allocated $1,450 million to trade names, which have an indefinite life. The fair value for the Clif and Luna trade names, were determined using the Relief from Royalty method, a form of the income approach, at the acquisition date. The fair value measurement of intangible assets are based on significant unobservable inputs, and thus represent Level 3 inputs. Significant assumptions used in assessing the fair values of intangible assets include forecasted future revenue, discount and royalty rates. We expect to generate a meaningful cash tax benefit over time from the amortization of acquisition-related intangibles.

Goodwill was determined as the excess of the purchase price over the fair value of the net assets acquired and arises principally as a result of expansion opportunities and synergies across the U.S. and other key markets. All of the goodwill was assigned to the North America operating segment. Tax deductible goodwill is expected to be $1.4 billion and will be amortized.

Through the one-year anniversary of the acquisition, Clif Bar added incremental net revenues of $71 million during the three months and $529 million during the nine months ended September 30, 2023, and operating income of $11 million during the three months and $81 million during the nine months ended September 30, 2023. We also incurred acquisition integration costs of $37 million during the three months and $92 million during the nine months ended September 30, 2023. These acquisition integration costs include an increase to the contingent consideration liability due to changes to underlying assumptions. Refer to Note 9, Financial Instruments for additional information. During the three and nine months ended September 30, 2022, we incurred acquisition integration costs of $16 million and an inventory step-up charge of $20 million. We also incurred acquisition-related costs of $292 million

during the three months and $296 million during the nine months ended September 30, 2022. These acquisition-related costs are primarily related to the buyout of the non-vested ESOP shares.

Chipita

On January 3, 2022, we acquired 100% of the equity of Chipita Global S.A. (“Chipita”), a leading croissants and baked snacks company in the Central and Eastern European markets. The acquisition of Chipita offers a strategic complement to our existing portfolio and advances our strategy to become the global leader in broader snacking. The cash consideration paid for Chipita totaled €1.2 billion ($1.4 billion), net of cash received, plus the assumption of Chipita’s debt of €0.4 billion ($0.4 billion) for a total purchase price of €1.7 billion ($1.8 billion).

We have recorded a purchase price allocation of net tangible and intangible assets acquired and liabilities assumed as follows:



	(in millions)
Cash	$	52
Receivables	102
Inventory	60
Other current assets	3
Property, plant and equipment	379
Finance lease right-of-use assets	8
Definite-life intangible assets	48
Indefinite-life intangible assets	686
Goodwill	795
Other assets	77
Assets acquired	$	2,210
Current liabilities	133
Deferred tax liability	158
Finance lease liabilities	8
Other liabilities	21
Total purchase price	$	1,890
Less: long-term debt	(436)
Less: cash received	(52)
Net Cash Paid	$	1,402

Within identifiable intangible assets, we allocated $686 million to trade names, which have an indefinite life. The fair value for the 7 Days trade name, which is the primary asset acquired, was determined using the multi-period excess earnings method under the income approach at the acquisition date. The fair value measurements of intangible assets are based on significant unobservable inputs, and thus represent Level 3 inputs. Significant assumptions used in assessing the fair values of intangible assets include forecasted future cash flows and discount rates.

Goodwill was determined as the excess of the purchase price over the fair value of the net assets acquired and arises principally as a result of expansion opportunities and synergies across both new and legacy product categories. None of the goodwill recognized is expected to be deductible for income tax purposes. All of the goodwill was assigned to the Europe operating segment.

We incurred acquisition integration costs of $5 million during the three months and $15 million during the nine months ended September 30, 2023. We incurred acquisition integration costs of $14 million during the three months and $85 million during the nine months ended September 30, 2022. We incurred acquisition-related costs of $21 million during the nine months ended September 30, 2022.

Divestitures

Developed Market Gum - Held for Sale

On December 16, 2022, we entered into an agreement to sell our developed market gum business in North America and Europe for $1.4 billion. In connection with these agreements, we concluded that the disposal group met the held for sale criteria as of December 31, 2022. The disposal group is included as part of the North America and Europe operating segments.

We incurred divestiture-related costs of $14 million in the three months ended September 30, 2023 and $66 million in the nine months ended September 30, 2023.

Total assets and liabilities held for sale are comprised of the following:


	As of September 30, 2023		As of December 31, 2022
	(in millions)
Assets held for sale
Other receivables, net of allowances	$	2	$	—
Inventories, net	83		79
Current assets held for sale (1)	85		79
Property, plant and equipment, net	164		159
Operating lease right-of-use assets	1		—
Goodwill	290		292
Intangible assets, net	697		671
Deferred income taxes	8		—
Noncurrent assets held for sale (2)	1,160		1,122
Total assets held for sale	$	1,245	$	1,201

Liabilities held for sale
Accrued employment costs	$	—	$	4
Other current liabilities	1		—
Current liabilities held for sale (3)	1		4
Long-term operating lease liabilities	1		—
Deferred income taxes	—		15
Noncurrent liabilities held for sale (4)	1		15
Total liabilities held for sale	$	2	$	19

(1)Reported in Other current assets on the condensed consolidated balance sheets.

(2)Reported in Other assets on the condensed consolidated balance sheets.

(3)Reported in Other current liabilities on the condensed consolidated balance sheets.

(4)Reported in Other liabilities on the condensed consolidated balance sheets.

On October 1, 2023, we completed the sale of our developed market gum business in the United States, Canada, and Europe to Perfetti Van Melle Group, excluding the Portugal business which we retained pending regulatory approval. We completed the sale of the Portugal business to Perfetti Van Melle Group on October 23, 2023. We received net cash proceeds of $1.4 billion, subject to certain closing adjustments, that can be utilized for general corporate purposes, including the support of our commercial paper program.