The Great Chocolate Divorce: Anatomy of a Corporate Breakup Under Stress

Barry Callebaut, the world’s largest industrial chocolate manufacturer, has confirmed that it is exploring a strategic separation of its cocoa division. While management cites “deleveraging” and “market volatility” as the primary drivers, a forensic analysis suggests a deeper reality: this separation appears to be the culmination of a long-term financial and structural strategy, accelerated, but not caused by the recent cocoa crisis.

The 2024/25 cocoa price shock provided the perfect justification for executing a plan that isolates capital-intensive, high-risk cocoa sourcing from the high-value, re-rateable chocolate manufacturing business. The result is a transaction that benefits balance-sheet optics, valuation multiples, and regulatory risk allocation, particularly for the controlling shareholder, Jacobs Holding.

The “Heart Attack” That Justified Surgery

In fiscal year 2024/25, Barry Callebaut’s integrated business model suffered an acute financial shock. Cocoa prices surged from roughly USD 3,000 per tonne to over USD 12,000, dramatically inflating the cost of financing physical bean inventories. To maintain operations, the company was forced to expand borrowing aggressively, driving net debt to a peak of CHF 6.1 billion.

This debt escalation triggered immediate pressure from credit rating agencies. Moody’s flagged the company’s Net Debt/EBITDA ratio above 8.0x, a level incompatible with investment-grade status. For a business reliant on cheap and continuous access to credit, a downgrade would have been existential. At the same time, Barry Callebaut’s cost-plus pricing model failed to absorb surging interest costs, causing recurring net profit to collapse by approximately 70% in the first half of the year.

This was not merely a cyclical setback. It was a financeability crisis, one that provided management with the internal and external leverage required to pursue a radical restructuring that might otherwise have faced resistance.

A. Balance Sheet Mechanics: Why the Cocoa Shock Was Structurally Fatal

The cocoa shock did not simply increase costs; it broke the working-capital geometry of Barry Callebaut’s integrated trading model.

The company operates a high-turnover, inventory-intensive system in which cocoa beans must be financed months before chocolate is sold. As prices quadrupled, inventory financing requirements rose linearly with price but non-linearly with risk. Each additional tonne required four times the capital, while customer contracts, often repriced with delay, failed to offset the surge in interest expense.

This created a negative convexity effect: revenues increased, but free cash flow deteriorated. Higher prices permanently reset:

• Base inventory values
• Bank margin requirements
• Collateral haircuts applied to commodity stocks

The result was a structurally impaired cash-conversion cycle and persistent balance-sheet strain. The issue was not operational viability, but whether the model could remain financeable under sustained price volatility. Under such conditions, separating capital-intensive sourcing from manufacturing becomes economically rational rather than optional.

The Mastermind

The architecture of the proposed separation bears the hallmark of Jacobs Holding, the investment firm controlling approximately 30.1% of Barry Callebaut. The move aligns with a pattern seen in prior Jacobs-linked transactions, including the Adecco stake sale and the Jacobs Solutions spin-off.

The appointment of Peter Feld as CEO in April 2023 was a critical signal. Feld is not a career confectionery executive; he is the former CEO of Jacobs Holding itself. His mandate appears less about running a chocolate company and more about optimizing an investment.

Separating the businesses allows Jacobs Holding to unlock the valuation of the chocolate manufacturing arm, which is eligible for premium multiples, while isolating the structurally volatile and capital-heavy cocoa trading operation.

A. Governance & Control — Why Minority Shareholders Were Always Exposed

Although Jacobs Holding owns roughly one-third of the equity, its strategic influence exceeds its economic stake. Barry Callebaut’s governance model has historically emphasized anchor ownership and limited activist pressure, giving controlling shareholders substantial latitude over capital allocation.

Feld’s appointment marked a transition from operator-led governance to asset-manager governance. Minority shareholders, by design, bore asymmetric exposure:

• Downside risk from commodity volatility
• Delayed benefits from valuation re-rating
• Limited influence over structural separation decisions

The proposed split disproportionately benefits creditors, controlling shareholders, and management, while leaving minority holders exposed to the residual risk profile of the cocoa entity.

The Blueprint

In September 2023, before the cocoa crisis reached its peak, Barry Callebaut launched the “BC Next Level” program, a CHF 500 million initiative framed as a digitalization and efficiency drive.

Operationally, the program centralized IT, HR, and supply-chain functions, dismantling regional silos and simplifying internal dependencies. While presented as modernization, these actions also made the business technically separable. A division cannot be spun off cleanly if core systems are deeply entangled. “BC Next Level” effectively “unzipped” the organization.

The timing suggests that optional separation capability was being built well before the crisis made its execution unavoidable.

The “Toxic Asset”

Beyond financial stress, the separation addresses a looming regulatory asymmetry related to the EU Deforestation Regulation (EUDR), effective December 30, 2026. The regulation places primary liability on the “Operator,” defined as the importer, exposing them to fines of up to 4% of global turnover.

The cocoa sourcing division is the natural lightning rod for this risk.

A. EUDR Compliance — Why Scale Is a Liability, Not an Advantage

EUDR compliance scales with supplier fragmentation, not volume. Cocoa sourcing requires:

• Farm-level polygon mapping
• Satellite deforestation verification
• Continuous traceability to individual plots
• Auditable data across thousands of smallholders

Large cocoa traders source from hundreds of thousands of farmers, often in regions with weak land registries and informal tenure systems. This creates:

1. Severe data asymmetry
2. Concentrated regulatory liability
3. Compliance costs that cannot be reliably passed downstream

By contrast, downstream chocolate manufacturers are classified as “Traders” and rely on upstream due-diligence statements. Their regulatory exposure is materially lower.

Spinning off the cocoa division does not eliminate EUDR risk, it concentrates it in a lower-margin entity already exposed to price volatility. This is best understood as risk segmentation, not regulatory evasion.

The Conglomerate Discount Trap

Investors have long penalized Barry Callebaut for being a hybrid entity: part commodity trader, part food manufacturer. This has resulted in a persistent conglomerate discount, with the stock trading at approximately 8–10x earnings, well below pure-play food ingredient peers at 18–22x.

A. Valuation Arbitrage

As a combined entity, Barry Callebaut has been valued closer to the lower bound. The split enables immediate multiple expansion for the chocolate business while isolating the structurally discounted cocoa operation. The 2024/25 profit collapse did not create this opportunity, it forced its execution.

The Verdict

This is a financial and structural engineering operation. The objective is to create a high-value, re-rateable chocolate manufacturing company, likely retaining the Barry Callebaut name, alongside a separate cocoa sourcing entity that carries the debt, inventory risk, and regulatory exposure.

The cocoa crisis was not the strategy.
It was the catalyst that made the strategy unavoidable.

The Official Narrative vs. the Strategic Reality