Rival German Herb Suppliers Merge

HENSTEDT-ULZBURG, GERMANY—In a move that creates what observers say is the largest herbal company in the world, German herbal extract and raw materials supplier Martin Bauer announced in mid-October that it has purchased rival Paul Muggenburg for about $90 million.

Jack Klein, president and owner of Jack Klein Inc., agent for Muggenburg North America, describes the merger as friendly.

Whatever the circumstances surrounding it, the merger creates an international herb supplier and extractor with tremendous power and influence, according to Rob McCaleb, president of the Boulder, CO-based Herb Research Foundation.

Each complements the other where the other is relatively weak, says McCaleb. Bauer gets most of its revenues from herbal extracts—specializing in tea herbs and plant extracts. It is publicly traded on the German stock exchange, DAX, and in Europe and the U.S. the company is second only to Unilever’s (UN) Lipton in processing decaffeinated tea. Bauer also owns German-based herb extractor Finzelberg as well as a large herb extractor in Poland.

Formerly privately held Muggenburg specializes in raw herbs. In fact, it’s one of the largest suppliers of raw herbs in the world and has offices in 12 countries. Moreover, up to 75% of Muggenburg’s supply has been under the company’s own cultivation. In addition, Muggenburg specializes in medicinal herbs, which complements Bauer’s specialization in tea herbs, and also has what Klein calls state-of-the-art extraction facilities.

“From an international standpoint, it’s the world’s biggest buying the world’s second biggest,” McCaleb says. “Having one company in charge of moving so much of the world’s botanical raw materials could have implications for world supply,” McCaleb adds.

Klein believes the implications are positive. Better quality control and better economies of scale are among them.

The economies of scale provided by owning both the raw materials and the means of extraction could result in more competitive pricing, rather than price increases, as some in the industry say they fear, Klein says.

But McCaleb cautions that a company as large as the Bauer-Muggenburg merger will create can’t help but have the potential to influence pricing. The larger company could, for example, raise prices to buyers while lowering prices to farmers, he says.

Mark Blumenthal, executive director of the American Botanical Council in Austin, TX, says the merger may affect prices in Europe but not in the U.S. That’s because in the U.S. Martin Bauer must compete with the Italian supplier Indena, which at an estimated $150 million in annual sales, is probably the largest standardized botanical extracts company in the world, Blumenthal says.

Details of the merger agreement, including the way the combined companies will operate, are still under discussion, according to Klein. He expects them to be finalized by the end of November.